A structured settlement is an agreement reached between a plaintiff (the person who files a lawsuit) and the insurance company for the defendant (the person or company that is sued) to pay a personal injury or wrongful death settlement to the plaintiff over time rather than paying the money in a lump sum.
Such settlements can be structured to pay out the money over any period of time, from a year to a lifetime. The payments can be a combination of monthly payments and "bonus" payments every five years. There is virtually no limit as to how payments can be structured; the financial and other needs of the individual determine how a structured settlement will work.
Every structured settlement includes the payment of interest, and this interest is tax-free assuming that the appropriate rules are followed.
One advantage of a structured settlement is that it relieves the plaintiff of the burden of figuring out how he or she will invest the money from a personal injury or wrongful death settlement. All of the decisions about future needs and uses of the money are examined before the structured settlement is arranged, and then the plaintiff can simply forget about the money and be virtually certain that the money will come directly to their home or checking account (as requested) on the dates required by the settlement.
Another advantage for some plaintiffs is that a structured settlement provides for tax-free interest.
There are several negative aspects to structured settlements. One is the fact that, once established, the structured settlement cannot be altered without a significant cost. Therefore, a structured settlement is an investment that lacks flexibility. Second, the interest rate of return is more of less "locked in" at the time of the settlement, which means that over time the monies paid may lose purchasing power (because of inflation). Finally, there is a risk (a small risk, but still a risk) that the company who promises to make the payments could go bankrupt, leaving the plaintiff with the potential of not receiving future monies.
This is just a brief summary of structured settlements – there is much more to consider before deciding to accept or reject a structured settlement in your case. At the Law Offices of John Day, P.C., we have resolved a large number of cases where our clients accepted a proposal from the defense to put some or all of their money into a structured settlement. We work with professionals to educate our clients about this way of settling a case and allow them to make an informed decision about the issue.