Why a Structured Settlement Payment Is a Popular Choice
Structured settlements offer several advantages that
make them a popular choice with individuals. The foremost benefit of a
structured settlement is that it provides cash at regular intervals and the
money is free of state as well as federal taxes. As against this, the interest
accrued from investments made from money obtained through a lump sum is subject
to federal and state tax. Also, very often individuals who come into money by
acquiring a lump sum are unable to invest it wisely and often spend it
wastefully, this is not possible with a structured settlement where small
amounts are made available periodically and therefore a person’s spending is
regulated.
Loss of money that has been acquired through an
installment of a structured settlement is not as severe as loss of money
acquired through a lump sum payment. The small amounts are easy to manage and
also do not excite the interest of unscrupulous elements as compared to hefty
lump sum payments.
With a structured settlement, an individual does not
need to worry about planning for long-term investments as the periodic payments
can be structured to take adequate care of one’s needs post retirement or in
the case of a debilitating injury. Structured settlements are favored by both
the defendant and the plaintiff as they can be settled without having to go to
court. This saves time and is often cheaper for the defendant who would
otherwise have to pay more with an in-court settlement. The risks involved for
both parties are reduced with a structured settlement as per which the
defendant is contractually bound to pay the plaintiff. Also, attorney costs for
a out-of-court negotiated structured settlement are lower than what they would
be if a litigation were to be filed in court. Attorney fees can come down by as
much as 8% to 10% for a structured settlement achieved out of court. This can
mean a saving of thousands of dollars for the defendant as structured
settlements can often run into more than a million dollars.
Structured settlements allow insurance companies to
provide payment to claimants at a lower cost and the payment schedule can be
set according to a claimant’s convenience. A structured settlement can be used
to provide for certain costs of an individual right from the stage when he is a
minor. The money can be disbursed for college expenses or to meet the costs of
higher education. Periodic lump sums made available to an injured person can be
used to make medicinal purchases and sustain oneself.
One reason for the popularity of structured
settlements is that they can be availed in a variety of formats; these include
lump sum payments made periodically when funds are required for medical
expenses, education, or marriage; percentage increase annuities that offer
annually increasing payments that help to counter inflation; deferred annuities
that enable to defer the commencement of payment to a later date; period
certain annuities that can be combined with a lump sum payment for receiving
payment over a fixed period; and joint and survivor annuities in which payments
are continued to the survivor annuitant if the primary annuitant passes away.