Are you curious as to what are structured settlements? If yes, you need to check out this guide with the important things to know.

Have you ever wondered, “what are structured settlements”?  Curious about the when, where, and why behind choosing this settlement option?

In this article, we’re covering everything you need to know about structured settlements.  So, you can know everything you need to about this option should it ever present itself.

What are Structured Settlements?

Unlike a lump sum payment, which provides a one-time sum of money, a structured settlement is a series of payments awarded to a person who has won or settled a lawsuit. With a structured settlement, the at-fault party is required to pay through periodic payments. This option is often chosen because it’s usually tax-free and it prevents the recipient from spending the money as quickly as a single payout would allow them to.

If you choose a structured settlement as your payout option, you can decide whether you’d like to receive that money immediately or at a later date. If you have medical care needs, you may want to tap into those payments immediately, but you may also want to postpone if you’d like to wait until you’ve retired.

You also have the flexibility to decide if you’d like the payments to go up or down over time and if you’d prefer for the payments to be for your lifetime or over a set of years.

Why Do People Choose Structured Settlements?

There are many reasons why a person may choose a structured settlement over a lump sum payment.  People often choose this settlement option for personal injury cases as it can often more effectively pay for medical expenses and other costs better than a lump-sum option. It’s also often used for workers’ compensation cases for similar reasons like medical treatment and wage replacement.

 Pros of Structured Settlements

There are also many pros associated with structured settlements. For example, payments with this option are tax-free. They’re also spread out of time, which can guarantee future income that may be needed to pay for long-term issues such as medical care.

Additionally, payments can be paid out immediately or deferred for several years if need be.  And if the recipient of this settlement dies, their heirs can continue to receive the tax-free payments.

Structured settlements are guaranteed by the insurance company that provided the annuity, so they won’t fluctuate with any market changes.  They may also even yield more than a lump-sum payment thanks to the interest your annuity can earn over time.

 Cons of Structured Settlements

While there are many pros to structured settlements there are also some cons to be aware of. One of the biggest cons of structured settlements is that they cannot generally be renegotiated once terms have been finalized. You can also not access these funds in a lump-sum payout if an emergency occurs. And some parts of your settlement like punitive damages and attorney’s fees can also be taxed.

Final Thoughts on Structured Settlements

Choosing between a lump-sum payment and a structured settlement is a big decision that has both personal consequences as well as tax implications. Now that you know the answer to “what are structured settlements?” you can decide which payment option is right for you!

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