What Is Better: Structured Settlements or Lump Sum Payouts?

When an insurance company owes you money, such as after a personal injury settlement award, there are several decisions you need to make. One of those decisions is whether to accept the funds as a single lump sum or to set up consistent payments over years.

Both methods have benefits and potential downfalls, and there is no direct answer to the question of which is better, a structured settlement or a lump sum payment. Consider the following factors that could influence your decision and speak with a Lexington personal injury lawyer at Gary C. Johnson P.S.C. about your case.

Periodic Payments Create Financial Stability

From a sheer convenience point of view, structured payments allow you to receive the funds in a consistent manner over months or years.

This creates a steady stream of income that you can become reliant on, much like a monthly paycheck for the work you do. Periodic payments like this can help you to know what compensation you are receiving and when it will be paid to you.

If you are likely to receive payments over the next 10 years, knowing that those payments will be there every month can provide financial peace of mind.

Immediate Access to the Full Sum

Many people prefer to receive a single lump sum payment for all of their losses at one time. This single but full payment allows you to have all of the funds you need immediately to meet any financial needs you have. Many will take these funds and use them for specific goals such as:

• Investing the funds in some type of real property
• Investing the funds into an investment strategy
• Using the funds to repay the debt you owe to others
• Making substantial purchases to meet new needs

You can use the funds you receive in any way you desire. It helps to have all of those funds at one time if you know you need the money now, such as for advanced care or to pay bills. However, it is important to know that receiving those funds all at one time could create a situation where you deplete the funds too quickly.

Tax Applications in These Cases

Structured settlements work as a form of income for you, paying you every month or at regular intervals. However, in most situations, the Internal Revenue Code makes these payments tax-free to you.

This means that even though you are receiving the funds as a deposit to your account every month, the IRS does not consider the funds taxable, making them tax-free moving forward.

Depending on the situation, your lump sum may not be tax-free. Because tax obligations are a very specific and personalized decision, make sure you speak to a tax professional who can help you determine which method may be beneficial to you for reducing tax obligations. Always speak to a tax professional before you make tax-related decisions.

Working with an Attorney to Gain Insight

Even if you are confident that you know which is better for you, a structured settlement or a lump sum payment, having an attorney to guide you can prove to be critically important.

By contacting a car accident lawyer in Lexington, you can consider strategies that will work best for your immediate needs. Avoid making a decision before you consider all of the financial implications before making a decision.