The most commonly awarded type of court settlement is the structured settlement. Structured settlements are periodic payments that the recipient gets over a period of time. This type of settlement, instead of paying in one lump sum, pays the person over years, possibly over a lifetime depending on the individual circumstances and the total amount being paid.
The types of cases that most often result in structured settlements include: personal injury lawsuits, worker’s compensation suits, and numerous other types of lawsuits in which a large amount usually must be paid to the victim.
Many people believe these types of settlements are right for them before they even really look into the disadvantages. Yet there are some disadvantages of structured settlements, which may make people think again before agreeing to receive their money in structured settlement form.
One of the main disadvantages of structured settlements is that they do not allow the recipient to dispense with the money they are awarded as they choose. They receive the money over what is usually a long period of time, so if they need the money sooner they are essentially out of luck. Cases where the recipient may need the money sooner rather than later include: incidences in which one party was injured and has amassed a large amount of medical debt as a result, and worker’s compensation suits where the recipient, due to his or her inability to work, has not been being paid regularly recently.
Medical bills can build up very fast, and if the payments are structured the recipient is often not given enough money at a time to pay off his or her debt. For these reasons one lump sum may be better than a settlement that is structured because the person can pay off all of his or her bills at once, and not have to worry about bills or collection agencies, but be able to focus his or her energies on getting better.
In addition, a structured payment cannot be invested, while one lump sum can. With one lump sum, you can invest the whole amount and make a profit on it; or you can at least put it all in an account and receive interest on the money.
Another one of the disadvantages of structured settlements is that some of them stop payment if the person dies. In this case the person’s heirs do not get the money the victim was entitled to, payments just stop. If one lump sum is awarded, the deceased’s heirs are able to get the money, but with some structured payment plans the plan expires when the recipient dies, regardless of how much money is left to be paid, or of how many dependents the recipient has been supporting with his or her structured settlement.
These types of settlements also do not allow for unexpected large payments such as medical bills, or college tuition. The person cannot usually get a larger payment to pay for these costs. So if there may be a situation in your future where you’ll need to get a large amount of money for some type of payment you cannot make otherwise, a structured settlement is not your best option, since it does not allow you to access your money when you need it.
When making any types of big decisions such as this, make sure to look into all your options; weigh all the advantages and disadvantages of structured settlements and see what is really the right choice for you, not just right now, but in the future as well. While you are making your decision, consider all factors that may come into play. The decision of structured settlement vs. lump sum is a big decision; one that usually involves large amounts of money, and one that it pays to consider well before finalizing.
By Lauren Culliton