In general terms, a plaintiff (the person filing the law suit) is required to withdraw the law suit and receive a settlement in return from the defendant (the person being sued.) Therefore, a settlement can be defined as an arrangement between the defendant and the plaintiff so that the plaintiff receives payment. Settlements can either be done as lump sum or structured payments. Lump sum is where the settlement is paid all at once and settled. However, the structured settlement is where the defendant pays the money to the plaintiff in regular payments for a specified period of time.

More about structured settlements

In most cases, structured settlements are agreed upon when the plaintiff has suffered a lot of damage especially in their health or another catastrophe due to the actions of the defendant. Some of these structured settlement are taxed and it is therefore to carefully and extensively consult. This way, you are able to know all your options and even explore them before you agree to receive the structured settlements. Below are some of the pros and cons of having a structured settlement.

Pros of structured settlement

The plaintiff may receive a tax benefit when they receive a structured settlement for settlement of personal injury. This is because this kind of settlement does not attract any taxes whatsoever according to the US tax code. However in some exceptions, a portion of the settlement may be taxed and it is therefore impotent to carefully consult before taking the settlement.

The structured settlements offer the plaintiff financial security for a longer period of time. This is because the settlement agreed on is to be received by the plaintiff for a specific period of time. On the other hand, the lump sum is paid all at once and it may end up being spent up very fast. In such a case, the lump sum settlements are more suitable for young people and minors that can make long terms investments.

The parties involved may also tailor some of the settlement to perfectly suit the future financial needs of the plaintiff. The lump sum is however a one-time deal with no room for negotiations.

The structured settlements are protected by the law and even when the insurer becomes bankrupt, there is a safety net for the plaintiff. This ensures that the plaintiff will receive the settlement irrespective of the financial position of the insurer.

The funds can be dedicated to cover advancements in medicine that are unanticipated. This ensures that the plaintiff is able to try out advancements in medicine when they are released.

It may be the best option for parties that are not close to coming to an agreement on the settlement terms. This is because a structured settlements gives both the plaintiff and the defendant room to negotiate and come up with a settlement pan that is convenient for the both of them.

Cons of structured settlement

There are parts of the settlement whether lump sum or structured settlement that are subject to taxation. Some of these include the fees for the attorney, damages that are purely emotional and even punitive damages.

Due to the unpredictable change in the economy, the structured settlements may end up being too little. When the cost of inflation that was not accounted for when making the agreement occurs, then the plaintiff is bound to suffer because the funds will be insufficient for their needs.

Some of the insurance companies have refused to disclose how much money they have to incur to pay for the annuity covering. A lump sum settlement costs the insurance companies significantly more than the structured settlements do. When the attorney to the plaintiff does not know all this information, then they are not able to determine the drawbacks and the benefits of the settlement plan.

Conclusion

A structured settlement can either be voluntary or forced. When the two parties agree to settle their matter out of court and the defendant agrees to pay the settlement, then that is voluntary. On the other hand, the case may be taken to a court of law and the judge rules that the plaintiff receives structured settlement. Above are some of the pros and cons of having a structured settlement to help you decide whether you want a lump sum or structured settlement.