Personal injury claims are resolved by settling with the involved insurance company or initiating a lawsuit. In most cases, the injured party chooses the settlement option.
Sometimes, settling involves the payment of one lump sum to the harmed individual. However, the insurer may offer a structured settlement paid at regular intervals instead. How do you know what type of settlement will serve your best interests?
Below, we will look at the pros and cons of structured settlements.
What are the advantages?
A top benefit of structured settlements is protection from tax burdens. Under U.S. tax law, these arrangements are considered tax-free except in specific circumstances (you may have to pay taxes on punitive damages). Other benefits include:
- Tailoring settlements to meet your specific injury needs
- Possibly receiving one lump sum in combination with regular payments
- Certainty and security knowing you have a steady stream of funds for injury treatment
Further, when you receive your payouts over a fixed period, your funds may last longer than a lump sum payment.
What are the disadvantages?
Even under the tax-free law, some funds received through structured settlements are subject to taxes. Punitive damage awards (as mentioned above) and purely emotional damage awards may be taxed. Two more possible drawbacks include:
- The fixed payments may not fully address your current needs
- If your injury worsens over time, the payments you receive may be inadequate
You can avoid the pitfalls accompanying personal injury settlements by learning more about the legal options at your disposal. Under professional guidance, you also have a better chance of choosing between an insurance settlement or personal injury litigation.
