In most personal injury claims and lawsuits, the plaintiff often receives a lump sum payout if they win the case. However, there is another option that ensures a stream of tax-free payments for the injured party, which may be an excellent alternative to consider.
Schuerger Shunnarah Trial Attorneys has personal injury attorneys that have protected the rights of many injured victims and helped them secure a fair settlement. Those who have suffered injuries in Dallas, Texas, should reach out to them to discuss their personal injury case and learn more about their legal options.
What Is a Personal Injury Structured Settlement?
When an injured victim wins a personal injury lawsuit or claim, the affected party or their insurance company must pay the awarded settlement amount within a certain period, according to the settlement agreement signed by both parties involved. Contact Schuerger Shunnarah Trial Attorneys for more questions like How are personal injury settlements paid out in Texas?
The settlement agreement contains essential details, such as the amount of settlement money the at-fault party has to pay and the frequency of the payments (whether it is a lump sum or a structured payment).
In most personal injury cases, injured parties may receive a lump sum payment. However, any of the parties involved may discuss another financial arrangement, which is commonly referred to as a structured settlement.
Structured settlements are voluntary financial arrangements agreed between the two parties that involve the disbursements of the settlement money across multiple installments. The frequency of payment is often decided before drafting the settlement agreement.
When settlement payments are small, the defendant or their insurance company may process them as a lump sum settlement. However, if a large sum of money is involved, a structured settlement annuity might be a favorable option for the at-fault party or their insurer.
There are several factors that can affect the type of arrangement the injured party may agree to, and some of these include their financial needs, personal preferences, and future tax considerations, among many others.
When the parties agree on a structured payment plan, the at-fault party will purchase an annuity, which is a financial product offered by an insurance company that disburses regular payments over a certain period of time.
This can be a fantastic alternative to consider for all those injured victims who require financial security after winning their personal injury claims or lawsuits.
Structured settlement payments ensure a steady stream of income, preventing the recipients from spending all their settlement funds in one go.
What Are the Parties Involved in a Structured Settlement Payment?
Although a structured settlement payment seems like a straightforward alternative to lump sum payments, that's not the case. There are four parties involved in making these types of agreements work, and these are as follows:
The Claimant
The claimant is the injured or affected party that pursues a civil action (a personal injury claim or lawsuit) against the at-fault party to recover the damages incurred.
The Defendant
The defendant is the at-fault party that may be liable for the claimant's damages. If the claimant wins the personal injury claim or settlement, the defendant may either set up a lump sum payment or schedule structured settlements.
The Assignment Company
If the claimant and the defendant agree over structured settlements, the defendant must entrust an assignment company to make periodic payments to the claimant on behalf of the at-fault party.
The Insurance Company
The assignment company works with a life insurer by buying a structured settlement annuity. This allows them to make periodic payments to the claimant according to the details agreed on in the settlement agreement.
In short, structured settlements is a four-step process that includes the following:
The claimant agrees to settle the liability by accepting a structured settlement;
The defendant funds the settlement payments and hands over the liability to the assignment company;
The assignment company buys a structured settlement annuity from a life insurance company to make periodic payments; and
The life insurance company fulfills the payment commitments made under its structured settlement annuities plan.
How Is a Personal Injury Structured Settlement Annuity Different from a Typical Annuity?
In a typical annuity, an individual purchases an annuity from the insurance company that allows them to receive a constant stream of income over a period of time. This means that the purchaser is often the owner of an annuity.
However, personal injury structured settlements work in a different way, as the assignment company owns the structured settlements annuity. This means that if the claimant wants to sell the annuity, they must seek approval from the court. They can also advise on the effect of tort reform on personal injury cases.
What Are the Advantages of a Structured Settlement?
One of the major problems associated with a lump sum settlement is that the plaintiff may spend most of the money as soon as they receive it. This can adversely impact their financial position, especially if they have future medical expenses that they need to cover.
Congress decided to introduce structured settlements as a means to combat the main problem associated with lump sum payments. It encourages the plaintiff to receive payments periodically, allowing them to cover their living and medical expenses without worrying about spending all of the settlement funds.
To encourage plaintiffs to choose a structured settlement over lump sum payments, Congress added tax advantages by passing the Periodic Payment Settlement Act of 1982. Any interest earned through annuities grows tax-free.
Another major advantage of a structured settlement is that it prevents the plaintiff from distributing the money to their friends and family. If the affected party does not have a lump sum payment, they're less likely to spend it on the people they know.
What Are the Drawbacks of Structured Settlements?
Although structured settlements might seem like a good idea, it does have its fair share of drawbacks. These types of financial agreements are not flexible, which means that the contract binds the plaintiff to the annuity. They cannot sell the annuity without losing the value of their structured settlement.
Another major drawback of structured settlements is that the plaintiffs have to wait between receiving the payment installments. They cannot request the release of future payments earlier, even if they're in dire need of money.
Also, the interest rate is extremely low on structured settlement annuities. The amount could grow at a very slow pace.
In some cases, it may be better to receive a lump sum payment and invest the entire amount in a mutual fund or any other financial instrument. This could provide flexibility and a greater rate of return.
Schuerger Shunnarah Trial Attorneys Can Help the Injured Victims Learn More About Structured Settlements!
In some personal injury cases, it's best to settle and take a lump sum payment, while under certain circumstances, it may be an excellent option to consider the structured settlement alternative.
Those who have suffered injuries in Dallas, Texas, due to another's negligence should call to schedule a free consultation with Schuerger Shunnarah Trial Attorneys. They can help assess the case and guide the injured victim on the best option for them.