Structured Settlement 101
An annuity is a type of structured settlement. A structured settlement is different than a lump sum settlement. A lump sum settlement pays the entire settlement amount at one time. A structured settlement pays the settlement in multiple payments over a period of time. An annuity is a type of structured settlement that is purchased from an insurance company on behalf of the injured party. Basically, annuities are guarantees that periodic payments will be made.
There are several advantages of annuities over one lump sum payment. Some settlements are taxable, such as lost wages. In that case, there could be a tax advantage to spreading the money over multiple tax years instead of taking the tax hit in one year. Also, annuities are especially useful in cases involving young adults. Younger people can be inexperienced with money. Handing a large, lump payment to a young person can be disastrous. Further, even more experienced individuals who have never been responsible for large sums of money can be good candidates for annuities. Annuities make it impossible for people to spend their entire settlement at one time.
We have had several clients who have declined our advice to structure their settlement and have ended up spending the entire settlement amount in a short amount of time. We highly encourage every person to at least consider annuities if they have a large settlement. If you have questions regarding annuities or an injury case, please contact contact us.