Car Accidents and Structured Settlements

When huge verdicts are reported in trials, many people mistakenly think a huge check is issued to the plaintiff. In most cases, the payment is made in the form of a structured settlement. Structured settlements were first offered in the 70s as lawsuits in car accidents increased. A structured settlement allows the insurance company of defendant pay out the award for damages in installments. The method of payments and the time frame can be determined by the judge or by the parties involved (which is the best way and happens more often).

The Advantages of a Structured Settlement

  • The biggest advantage is with taxes. In some cases, structured settlement payments are tax free. But in any case, having the payments issued over time reduced the tax liability.
  • Many people would be tempted to spend all of a huge settlement at once. Receiving the payments over time takes away that temptation.
  • You will know you will have a steady stream of income. This is important if you are not able to work and need the money for monthly payments for bills.
  • While many smaller insurance companies and defendants cannot pay a huge lump sum that is awarded, many can make the monthly payments. You will be guaranteed to receive your settlement if you take it in payments.

The Disadvantages of a Structured Settlement

  • In cases of severe injuries, the plaintiffs may have huge medical bills looming. Receiving a lump sum payout would allow them to pay these bills quickly. Structured settlement payments may require some creditors to wait on their payments.
  • If you know a lot about investments, you may feel you could make better use of a lump sum payment. Investing the entire amount could yield huge returns on interest.

Because many people want their money quickly or have urgent bills to pay, many companies are willing to purchase structured settlements. Companies willing to buy these settlements advertise often on late night television and send letters to anyone who received a structured settlement. But most states have regulations about these transactions. Forty-four states require that the courts approve the sale of structured settlements. Georgia was one of the first states to enact laws regarding structured settlements (http://www.legis.ga.gov/legis/1999_00/fulltext/sb130.htm) and many states have similar laws.

Because some companies will take advantage of people who need money, consult with your attorney before you decide to sell your structured settlement. The company that is buying out your settlement will take a percentage and it may not be worth it to take the cut. You may also have to pay more in taxes if you sell your structured settlement. You may find that the laws in your state prevent you from doing so, anyway.

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