Lump Sum vs. Structured Settlements

Once you win your personal injury lawsuit, it feels like the battle is over. You’ve sought and received justice for your damages and are on your way to a happier and healthy life. However, once the settlement is won you still have many responsibilities to take care of. One of those responsibilities is determining whether you want a lump sum or structured settlement. 

Many people choose the lump sum option because they can use all the money at once. You can pay off all of your medical bills, and use the rest to make a big purchase or save and spend some time recovering. However, a structured settlement can make it easier to budget settlement earnings over a long period of time. The decision is very personal. You should know your options before deciding which option is right for you. 

Pros and Cons of Structured Settlements

Tax-free, steady income. Most structured settlements are paid in the form of an annuity. You can purchase these annuities from a third-party such as an insurance company, or from the U.S. Treasury in the form of treasury security. This helps you to earn more from your settlement amount. This income is still tax -free, even though it slowly increases your settlement amount. You receive your annuity payments steadily every month for a set amount.  

There’s no turning back. While the potential to grow your settlement money tax-free may sound appealing, you cannot change your mind once you’ve purchased them. If you run into a major expense you will not be able to take a lump sum from your settlement amount to pay for it anymore. You can only receive your smaller monthly payments, giving you less control.

Pros and Cons Of Lump Sums

Control. If you choose to receive your settlement earnings in a lump sum, you can spend the money however and whenever you’d like. You can manage your own investments and can take care of unexpected expenses more easily with that money in the bank. 

Risk. People who choose lump sum settlements often invest a portion of their earnings. While this is the smart way to grow your lump sum on your own terms, it is riskier than putting your money in an annuity or treasury security. Because you have more control, you take on more risk and may even lose some money if your investments do not go well. 

You may still be uncertain how you want to receive your settlement. Luckily, there are flexible and hybrid options available. For example, you may be able to take out a portion of the settlements in a lump sum to pay for outstanding medical bills, then invest the rest in annuities. You can also decrease the number of months or years in which your annuity will pay out, increasing your monthly payment amount. 

If you’re interested in learning more about your personal injury settlement options, talk to Katherine Stone of Injury Florida Law Firm. You can contact Katherine at [email protected] or call our office to schedule a consultation.