man signing structured settlement agreement with attorney

Are You Considering a Structured Settlement? Here’s What to Know

By David Hammond

When you reach the settlement phase of your personal injury case, you will be faced with a choice. Do you want to take your settlement as a lump sum, which would be a check for the full settlement amount? Or, do you want to invest all or part of your settlement in a structured annuity and receive payment over time at a guaranteed interest rate? The second option is referred to as a structured settlement and it is an attractive option for a number of reasons. Let’s take a closer look at structured settlements here.

What to Know About a Structured Settlement

With a structured settlement, you are, essentially, entering into a contract with an insurance company for the purchase of an annuity. You give the insurance company a lump sum portion of your settlement or your settlement in full upfront and then the insurance company provides you with regular monetary distributions from the annuity at a set interest rate.

Why would you take a structured settlement as opposed to a lump sum settlement? Well, there are several reasons. You would receive interest on the structured settlement investment. Some may say, “But couldn’t I just invest my settlement proceeds in something like the stock market and get interest that way?” Yes, you could, but this goes to one of the other benefits of a structured settlement.

You see, back in 1982, Congress passed The Periodic Payment Settlement Act of 1982. This Act was a formal recognition of the benefits of structured settlements and encouraged the use of structured settlements. After the Act passed, the Internal Revenue Code was modified to exempt personal injury settlements from taxation if the settlement proceeds were invested in a qualified structured settlement annuity. This means that the interest distributed from your annuity would not be taxed, but interest earned due to any increases in stock purchased with your lump sum settlement proceeds would be taxed. The interest on the annuity is also guaranteed whereas there is no guarantee that your stock will go up in value.

Additionally, structured settlements provide protection from other people accessing your settlement proceeds. It is a barrier to others gaining access to your money. Furthermore, putting your settlement in an annuity eliminates the need for you to manage your settlement proceeds as it is taken care of for you.

Before you take the structured settlement option for your personal injury settlement, be sure to review everything with your lawyer. Discuss whether this is the best way for you to go and the potential implications of entering into a structured settlement. You may also want to discuss all the customizable aspects of a structured settlement. You can decide how much of your settlement you would want to invest, when you would want payouts from the annuity, and more.

Central New York Personal Injury Attorneys

At CDH Law, our team takes care of you from the beginning to the end of the personal injury claim process. We fight for the injured. Contact us today.

About the Author
David is a former military prosecutor and defense lawyer with over a decade of experience fighting for service members and their families. He served nine years and two combat tours as an active duty US Army officer, then joined the Reserves and settled down in Syracuse to be near family. Now representing people across Central New York charged with serious felonies, misdemeanors, DWIs, and traffic offenses, he puts the same level of commitment into his civilian law practice. If you have any questions regarding this article, you can contact David here.