If you are a plaintiff in a personal injury case, you may receive a settlement as a lump sum, or you may receive it in a series of payments over a certain period. This is known as a structured settlement.
Most structured settlement cases involve people who sustained severe injuries or death in an accident. If you were involved in an accident, you may need to choose whether to opt for a lump-sum or structured settlement. Learning more about structured settlements will help you make an informed decision.
How Does a Structured Settlement Work?
The two primary parties involved in a structured settlement are the plaintiff (the victim) and the defendant (the person who caused harm). The process also involves a life insurance company and an experienced structured settlement consultant or broker.
The parties involved may negotiate the terms of the structured settlement before or after a lawsuit is filed. The settlement amount may take the plaintiff’s medical expenses, living costs, and family needs into consideration. Here is how a structured settlement typically works.
Step 1: The Plaintiff Sues the Defendant
The first step involves the plaintiff filing a claim against the defendant to recover damages incurred in the accident. In some cases, the defendant accepts the claim and pays the plaintiff through a structured settlement. This prevents the case from going to trial.
If the case goes to trial, the defendant may be forced to pay the plaintiff if the court rules in the plaintiff’s favor. Many people attempt to avoid trial because it can be time-consuming, tiring, and costly.
Step 2: The Plaintiff and Defendant Meet a Qualified Assignee
Next, the plaintiff and defendant meet a qualified assignee to establish the terms of the structured settlement agreement. The terms may include how the defendant will pay the plaintiff and how long the process will take, among other vital elements.
Once the parties have set the terms of the settlement agreement, the qualified assignee purchases an annuity for the plaintiff, and the defendant provides the money for the annuity. This way, the plaintiff can be sure they will receive payments as promised.
Step 3: An Annuity Is Purchased from a Life Insurance Company
The plaintiff must give consent to the qualified assignee before an annuity is purchased. The parties must also follow the annuity contract terms of the settlement agreement. Once the parties set the annuity terms, they cannot be changed.
The life insurance company may also set aside money for a specified trust fund or to cover attorneys’ fees. However, it is worth noting that the payments may only represent severe injuries or extreme cases.
Step 4: Plaintiff Gets Payment from the Life Insurance Company
In accordance with the agreement terms and the annuity contract, the life insurance company pays the plaintiff for the agreed time period. The annuity earns dividends and interest, which protect the value of the settlement from inflation. The plaintiff can receive the settlement without penalty.
Calculating the amount of a structured settlement can be challenging. It is best to consult an experienced financial advisor or lawyer. The experts may involve an economist to help calculate and determine the contract value.
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Types of Structured Settlement Cases
Below are the most common types of cases that may result in a structured settlement.
Personal Injury Settlements
If the defendant caused your injuries due to negligence, you may receive a structured settlement to help you pay your medical expenses and other related costs.
Workers’ Compensation Settlements
If you are an injured worker, you may be able to use workers’ compensation as a wage replacement or to pay for medical expenses. The Washington State Department of Labor & Industries (L&I) encourages workers to use structured settlements.
Wrongful Death Settlements
If you lose a loved one due to another person’s negligence, a structured settlement may be an option. You may be entitled to receive tax-free payments to cover lost income.
Other common structured settlement cases include medical malpractice, vaccine injury, wrongful imprisonment, discrimination, and sexual abuse or molestation.
Who Is Eligible for a Structured Settlement?
The National Structured Settlements Trade Association (NSSTA) states that structured settlements are suitable for many types of people or cases. These include the following:
- People with temporary or permanent disabilities
- Workers’ compensation cases
- Cases involving minors whose guardians have disabilities
- People who are unable to work and their dependents
- People who need money to support their needs
- People with severe injuries that require long-term medical care
They can also be suitable in wrongful death cases in which the deceased’s children or surviving spouse needs financial support. In short, the severity of the case will determine the suitability of a structured settlement.
Structured Settlement Benefits
Structured settlements have multiple pros and cons. Understanding this can help you make informed decisions, especially when you are experiencing financial challenges due to the injuries you incurred. Here are the benefits of structured settlements:
- Structured settlements are tax-free, even if they earn interest over time.
- The payments from the insurance company are guaranteed, even if the insurer becomes insolvent.
- If the plaintiff dies, the beneficiary continues to receive the tax-free payments.
- Structured settlements can increase in value over time because of interest earned.
- Payments begin almost immediately and may be deferred until later if requested.
- Structured settlements do not affect medical or Social Security Disability benefits.
- The payments can help the plaintiff manage future expenses, both anticipated and unexpected ones.
- Receiving money over time instead of in a lump sum helps prevent extravagant spending.
A structured settlement often yields positive results in the long term. This is helpful if you require long-term medical care because the insurance company guarantees payment as per the agreement. You may need to consult a legal expert or financial advisor for help in some cases.
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Consider a Structured Settlement
A structured settlement may be a good option for you depending on your specific needs. However, lawsuits and settlements may take more time than you expect because of the processes involved.