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What is a structured settlement? Is a structured settlement right for you?
Historically, money paid because of a personal injury lawsuit has been paid in the form of a lump sum at or shortly after the time of settlement. This kind of payment, especially in very large catastrophic injury cases, places the plaintiff, claimant or their family in the position of managing a large sum of money which is intended to provide for a lifetime of medical and income needs. Most people are not experienced in handling large sums of money. As a result, the money often is spent quickly, leaving little or nothing to cover future need of a seriously injured person. In order to create a more stable financial basis for the plaintiff or claimant, structured settlements were developed.
By definition, a structured settlement is the payment of money for a personal injury claim where at least part of the settlement calls for future payment. The payments may be scheduled for any length of time - even as long as the plaintiff's or claimant's lifetime, and may consist of installments payments and/or future lump sums. Payments can be in fixed amounts, can vary, or can be scheduled such that they increase to offset the effect of inflation. In the end, the schedule is structured to meet the financial needs of the plaintiff or claimant.
These arrangements may be voluntary, as in a pre-trial settlement, or they may be required by law or a court order, as in a settlement involving a minor. The defendant may agree to make future payments or it may purchase an annuity contract from a life insurance company (e.g. AIG, Met Life, Prudential, The Hartford, John Hancock, etc.) to fund the payments. Annuity contracts have been the preferred way of funding because of their pricing and flexibility for settlement design.
The advantages a structured settlement afford a plaintiff or claimant include: (1) income in the form tax free installment payments over time; (2) avoiding the risk of mismanagement of settlement proceeds; (3) avoiding the expense and worry associated with financial loss due to one's own failed attempts to manage their settlement; (4) convenience of regular pre-determined payments; (5) use of compounded interest to increase amount of original settlement; (6) little to no origination fee; and (7) long term financial security. To most plaintiff's/claimant's surprise, claims professionals, judges, plaintiff and defense attorneys alike, defendants and insurers all encourage the use of structured settlements.
Structured settlements must be established prior to the distribution of settlement funds by the defendant/insurer. Once the settlement proceeds are disbursed, it is too late to establish a structure. The money used to fund the structure must pass directly from the defendant/insurer to the company furnishing the structure.
The attorneys at the EISENBERG LAW FIRM handle many large loss cases involving injuries that are life changing. We encourage all our clients to consider the benefits of a structure. For more information concerning structured settlements, please feel free to contact us.
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