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Pros and cons of structured settlements

On Behalf of | Jan 6, 2023 | Car Accidents

A structured settlement is a financial agreement in which a claimant agrees to receive his or her damages in the form of recurring payments rather than a lump sum. Structured settlements are often used in personal injury cases in New York but can also be employed in other types of legal disputes. The following examines some pros and cons of structured settlements.

The pros

Structured settlements come with advantages that provide stability and peace of mind.

Tax advantages

Structured settlements are typically tax-free, which can be a major advantage for personal injury claimants who would otherwise have to pay taxes on a lump sum payment.

Predictable income

Structured settlements provide claimants with a steady stream of income, which can be helpful for those who are unable to work due to their injuries.

Protects against financial mismanagement

Some claimants may be tempted to spend their settlement all at once, which can lead to financial problems in the long run. A structured settlement can help protect claimants from making poor financial decisions.

The cons

The disadvantages of structured settlements mostly involve the factors that come with any less risky investment or settlement vehicle.

Lack of flexibility

Structured settlements are inflexible and cannot be modified once they are in place. This can be a disadvantage for claimants who may have unexpected expenses or need a larger lump sum in the future.

Lower overall payout

Structured settlements may result in a lower overall payout for claimants because they are receiving their damages over time rather than in a lump sum.

Selling structured settlements

Some claimants may need a lump sum of cash for a specific purpose, such as paying off debts or making a large purchase. In these cases, claimants may decide to sell their structured settlements in exchange for lump sum payments. However, this can result in a significant discount on the overall value of the settlement.

Do your due diligence

Structured settlements can be a good option for claimants who want a steady stream of income and tax advantages, but they may not be the best choice for everyone. It is important for claimants to carefully consider their options and consult with a financial advisor before deciding.

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