Lump Sum vs. Structured Settlements

September 7th, 2020

Which Settlement Disbursement Option Is Better?

When you receive a settlement after a civil lawsuit, whether for a personal injury, medical malpractice suit, workers’ compensation claim, or wrongful death, you may have more than one option for how to receive your money: as a lump sum or a structured settlement.

Lump sum disbursements are the most common, but structured settlements are typical for catastrophic injuries or accidents involving minors.

So, what do these options mean, and is one preferable to the other?

Pros and Cons of a Lump Sum Settlement

As the name suggests, a lump sum settlement is a large, one-time payment. Many accident victims prefer lump sum payments because it allows them to put their accidents behind them and be finished dealing with the insurance company once and for all.

Lump sum settlements also offer the most freedom. After all liens for medical expenses are deducted, the remainder of the settlement (pain and suffering, lost wages, and punitive damages, if any) can be used however the accident victim wishes, at any time they wish, and at their full discretion.

One downside is that many accident victims may experience friends, family, and acquaintances pressuring them to share their settlement.

In addition, victims may have trouble managing the windfall of money themselves. For very large settlements, they may need to hire a financial advisor to determine how best to invest the money.

Pros and Cons of a Structured Settlement

When accident victims experience severe or permanent injuries that require lifelong treatment or that prevent them from working again, they may opt for a structured settlement.

In this type of settlement, victims receive a series of smaller payments through an annuity purchased by the insurance company, rather than one large payment. For example, instead of a one-time check for $500,000 dollars, they may receive a $50,000 check every year for 10 years.

Structured settlements are incredibly flexible. You could opt to receive your payments for a set period of years, or for the rest of your life. You can also choose how often you receive them, whether that’s every month or once a year. 

You can even decide how much you want to receive in each payment (within the bounds of your settlement). For example, you could choose to receive one very large payment right at the start, and then divide up the remainder of your settlement into a series of smaller, regular payments, or you could decide to start with small payments that gradually increase in size as you grow closer to retirement age. Some accident victims even choose to defer their settlement payments so they only start once they reach retirement age.

However, it is best to discuss your structured settlement plan with your lawyer or a financial advisor before committing to it, since you won’t be able to change it later or receive a payment early, even if you need it.

Structured payments can also accrue interest; however, unlike the rest of your personal injury settlement, the interest will be taxable.

Severely Injured After an Accident? We Want to Help.

However you choose to receive your settlement, our biggest priority at Dudley DeBosier is making sure you receive the full amount you are entitled to after an accident that severely disrupts your life.

Our experienced Louisiana personal injury attorneys know what it takes to fight back against insurance companies that try to reduce or deny settlements, and we have the knowledge and tools to calculate exactly how much you may be owed after an injury caused by someone else’s negligence. Even more, we never charge unless we win, so contact us today for a free case review.