602.264.1077

Our attorneys use their knowledge of the insurance industry to fight for you

GET STARTED FOR FREE NOW

What Is a Lump Sum Settlement?

You may think accepting a settlement offer from an insurance company means the end of your case, but you must still complete a few additional steps. One is deciding how you wish to receive your settlement – in one lump sum or as a structured settlement. The majority of claimants receive settlements in lump sums, but in some scenarios, a structured settlement could be the better choice. A Phoenix workers’ compensation bad faith attorney could help you decide which type of settlement is best for you.

What Is a Lump Sum Settlement?

A lump sum settlement means the claimant receives the entire amount of the settlement in a single payment. Despite having a range of payout options to choose from, most minor to moderate personal injury cases reach settlements with lump sum payments. The recipient will immediately have the full amount of the settlement to do with as he or she pleases. The recipient may also owe the full amount of taxes owed on the settlement, such as for lost wage replacement or punitive damages.

What Is a Structured Settlement?

A structured settlement offers greater flexibility than a lump sum settlement. In a structured settlement agreement, the claimant receives pieces of the full amount month by month over a prearranged period (usually multiple years). Some structured settlements for serious injury cases give the claimant regular payments for life. In a structured settlement agreement, the defendant will give part of the full offer to another insurer, usually a life insurance company. Then, the second company will pay out the claimant the money he or she won over the years.

Although rare, choosing a structured settlement comes with a slight risk. The claimant receiving the full amount of his or her settlement depends on the longevity of the third-party insurance provider. If the life insurance company declares bankruptcy, for example, the remaining owed payments of a structured settlement will disappear. It is important, therefore, to make sure the company responsible for paying out someone’s structured settlement over the years has positive ratings and a stable enterprise.

A structured settlement comes with much greater flexibility for the recipient than a lump sum settlement. The claimant will have the power to negotiate the terms of the settlement, such as how long payments will continue, how often to receive payments, how much money each payment will contain and whether the claimant wants a lump sum payment at the end of the agreement. With a structured settlement, the claimant also has the option of passing the remaining payments to heirs after his or her death.

Which Type of Settlement Is Right for You?

While lump sum is the traditional way to settle a case, it is ultimately up to you to decide if you want your entire settlement at once or if you would prefer a structured settlement. If you suffered a life-changing injury and will receive more than $150,000, a structured settlement may be better for you and your family. A structured settlement can prevent you from spending your money too fast – something that is especially important if your settlement includes money for future medical expenses.

A structured settlement agreement can also come with lesser tax liability. You will have less money to list on your taxes at the end of each year, and therefore a lower tax obligation. If you receive a lump sum settlement, on the other hand, you will be responsible for paying the full amount of taxes on your settlement (if any) at once. An advantage to a lump sum settlement, however, is that you get all your money right away. You can immediately receive the money you need to move forward and complete your case. Find out which payment plan is best for your unique situation with help from an attorney.