When you sustain an injury at work and file a workers’ compensation claim, your case will likely end in a settlement. A settlement can come in one of two forms: either as a lump-sum payment or a structured settlement.
With a lump-sum payment, your employer or its insurer makes one payment to you and that payment closes your case. Most workers’ compensation cases end with this type of arrangement. However, in some cases, injured parties may prefer to receive structured payments over a determined period. Before you accept any type of settlement offer, it is important to understand your options. AllLaw explains what a structured settlement is, why you might accept one and when a lump sum payment is best.
What is a structured settlement?
If you elect to receive structured payments instead of one lump sum payment, you essentially choose to receive all or part of your settlement over X number of years or your lifetime. Generally, your employer or its insurer will pay a large part of the settlement to you or your lawyer immediately after you reach an agreement. The parties will then structure the remainder of the payments so that the defendant will pay them out over a period of years.
Why might you accept a structured settlement?
In most cases, a lump sum payment is preferable over a structured settlement. However, there are two good reasons to accept a structured settlement over a single payment, especially if your proposed settlement is greater than $150,000.
The first reason to accept a structured settlement is to save money on taxes. Though your workers’ comp benefits are not taxable, the interest and dividends it gains while sitting in your account may be. With structured settlements, you have less money sitting in your account year after year, which means a lower tax obligation.
The second reason to accept a structured settlement is that periodic payments can help you avoid spending your money too quickly. Sadly, many personal injury and workers’ comp plaintiffs spend their windfalls quickly and, within years, end up with nothing.
Why might you not accept a structured settlement?
Structured settlements are rarely favorable for the plaintiff. The main reason to not accept one is that there is always the risk that the insurance company will default. If it does, you lose all chance of recovering the remainder of your payments.
Another reason to avoid structured settlements is that they make it difficult for you to achieve your future goals. If you want to start a business, buy a home, pay down debt or all of the above post-injury, you may struggle to do so if you receive only minimal payments each year.
If your employer or its insurer offers a structured settlement, carefully weigh the pros and cons of accepting. A legal professional can help you secure the best possible outcome.