Structured Settlements 101: What They Are and How to Use Them

Have you recently been involved in a personal injury lawsuit? Do you qualify for a settlement, but aren’t sure which one to choose?

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Many people who qualify for personal injury settlements opt for structured settlements. But, what is a structured settlement? How do they work?

Check out this structured settlement definition guide to learn everything you need to know about structured settlements.

What is a Structured Settlement?

When you settle or win a personal injury case, there are different ways you can collect the money you’re awarded. You can either receive the money in a lump sum payment, or you can choose to receive the money in installments over time.

If you wish to receive the money in installments over a period of time, then you should opt for a structured settlement. Before opting for a structured settlement, however, there are some things you need to consider, including your:

  • Tax liability
  • Whether or not you need help managing a large sum of money
  • How you plan on spending the money

With a structured settlement, you receive periodic payments over a set number of years. For example, if you win $500,000 in your personal injury lawsuit, then you may choose to receive $50,000 every July for the next ten years.

Payment Options

With a structured settlement, you can receive your payments in one of the following ways:

Substantial Initial Payment: With this type of structured settlement, you receive a hefty first payment followed by smaller, periodic payments. This type of payment plan is best for those who have bills piling up due to being out of work.

If you need to pay off your mortgage or purchase a big-ticket item, such as a car, a substantial initial payment is a good idea.

Postponed Payments: If you don’t need the money right away, you may want to postpone receiving your money until retirement so you’re not tempted to spend it on frivolous items.

Higher or Lower Payments Over Time: You can also opt for your payments to increase or decrease throughout the years until you’ve received all of your money.

Supplementary Payments: If you have exceptional items you need to pay for, such as college tuition, you can set up your settlement so you receive additional money throughout the year.

If you need a cash payout, you may even opt to sell your structured settlement. You can click here to learn how to sell structured settlement.

Lump-Sum Payments vs Structured Settlements: What to Consider

When choosing between a lump sum payment and a structured settlement, one of the biggest things you want to consider is your personal financial history.

If you don’t have experience managing large sums of money, or you’re new to investing, then a structured settlement is likely the best bet for you. Many people overestimate their ability to manage and budget money, and they often spend their whole settlement in less than five years.

To make sure you’re not one of these people, opting for a structured settlement is your best bet. You should also consider whether or not you have any large expenses coming up, such as mortgage payments, car payments, or medical bills. Depending on the size of your settlement, a lump sum settlement may be better so you can pay off your bills right away.

Structured Settlement Definition: Time to Collect Your Winnings

Now that you understand the structured settlement definition, it’s time for you to decide how you’re going to collect your winnings. We suggest consulting with your lawyer and financial advisor to figure out which option is best for you.

Be sure to check back in with our blog for more money management tips and tricks.