The Settlement Alliance

Can a Structured Settlement Provide More Income Than a Lump Sum?

Can a Structured Settlement Provide More Income Than a Lump Sum?

Dec 28, 2016

If you have been awarded a settlement in a personal injury, wrongful death, or workers’ compensation case, you have a few options for how to handle your settlement proceeds. On one hand, you can accept the money as a lump sum, relying on your own ability to manage it. Another option available to claimants who receive settlements from these types of cases is a structured settlement annuity. You might be surprised to learn that a structured settlement could actually provide you with more income than a lump sum over the long-term. Read on to learn how:

What is a structured settlement?

A structured settlement is an arrangement in which a claimant directs the defendant to purchase a structured settlement annuity with the settlement proceeds, rather than writing a check for the full lump sum. The annuity company then provides the claimant with payments over time. The payments can be made monthly, bi-annually, annually, or in a series of a few smaller lump sums, if you know when larger amounts will be needed (e.g. for college, purchasing a home, etc.). You can also choose to take some of the settlement money up front in cash and put the remainder into a structured settlement, or even have the structured settlement pay directly into a special needs trust. You have control over the option that works best for you; the details just need to be written into the settlement agreement before the settlement is finalized.

Why would someone want to hold off on getting all of their money at once?

While accepting a lump sum might seem like a great idea at first, there are a few big reasons why spacing out the payments could be beneficial. First, after suffering a traumatic experience, it can be difficult to handle even the most basic life decisions. Trying to manage tens of thousands, hundreds of thousands, or millions of dollars can be overwhelming. Second, if you receive any needs-based government benefits (e.g. Medicaid, SSI, food stamps, etc.), a lump sum could be enough to push you over the income limits for benefit eligibility. Third, you want to make sure that the money is there when you need it, regardless of fluctuations in the traditional investment market. A structured settlement is a safe investment that will protect your settlement proceeds while providing you with a guaranteed, ongoing source of income.

How could a structured settlement provide more income than a lump sum?

Whether you choose to receive your settlement proceeds as a lump sum or in the form of a structured settlement, the money is income-tax free. However, any growth on the structured settlement is also tax-free; if you place the lump sum in a traditional investment, the growth on that investment is likely taxable. Also, there are typically overhead fees involved in traditional investing, whereas with a structured settlement, there are no overhead fees involved. When you combine the tax-free growth and the lack of fees, a structured settlement could potentially provide you with more income than if you had accepted your settlement proceeds in the form of a lump sum.

Contact us to learn more

The Settlement Alliance is one of the largest, most experienced settlement planning firms in the nation. We have placed structured settlements for thousands of claimants and work hard to ensure that you are getting the best possible rates and a plan that works for you. Contact us today to learn more.

We are proud to partner with the highest rated structured settlement providers in the industry:

  • American general Life Companies
  • Berkshire Hathaway Structured Settlements
  • Liberty Life Assurance Company of Boston
  • MetLife
  • Mutual of Omaha
  • New York Life
  • Pacific Life
  • Prudential