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How is a Settlement Paid Out?

When you are pursuing a settlement through a personal injury claim, it is understandable to be counting the days until you actually see that money. If your claim ends in your favor and your personal injury attorney is able to negotiate a fair settlement agreement for you, then when will you be paid? How is a settlement paid out in most cases?

There are basically two options for paying out a personal injury claim settlement: lump-sum or structured. Which type of settlement option should you want? Details of your claim, finances, and day-to-day life can all change which option is best for you.

Lump-Sum Settlement Payments

As the name implies, a lump-sum settlement is paid to you all at once. You receive one check from the opposing insurance party for the amount you agreed upon during settlement negotiations.

A lump-sum settlement brings the advantage of having the chance to sort all outstanding payments at once. It can also be satisfying to get a single payment and know that the case is behind you.

Settlements for comparatively low amounts are usually paid through lump-sums. For example, if you are owed $25,000 after a car accident, then the insurance company will probably offer to pay it all at once.

Structured or Periodic Settlement Payments

Structured settlement payments are provided over time, rather than all at once. It could take several months to receive all the structured payments, or it could take several years. The amount that you are owed can affect how long the structured settlement is stretched.

A Structured settlement is sometimes a good option especially when the agreed-upon amount is significant. For example, if an insurer or at fault party owes you $1,000,000, then the amount in which the insurer or at fault party owes you puts that money toward an annuity, which is a financial product that guarantees regular payments over time from an insurance company. The agreement details the series of payments you will receive as compensation for your harms, losses and damages. In such circumstances the total you receive through these periodic payments will usually exceed the amount in which you settled your claim. One advantage of a structured settlement is that the annuity provides you with income for several years and sometimes your lifetime. Also, any interest and taxes earned through the annuity will grow tax-free. Whereas if you receive a lump sum payment and invest that money any dividends or interest that is earned would be subject to taxes.

Some personal injury claimants prefer a structured settlement because it makes it easier to manage the money as it comes in, payment after payment. If you receive a lump-sum settlement, you could be tempted to make large purchases and forget about long-term financial goals. Structured settlements remove this temptation by metering out when you receive payments. If you are not in a tight financial bind because of damages related to your accident, then you may wish to structure your settlement and receive periodic payments.

Third-Party Claims to Your Settlement

Keep in mind that your settlement could be reduced by claims or liens on it placed there by third parties. Whether you receive a structured settlement or a lump-sum settlement, such liens will persist.

A common example of a lien on a settlement is a medical lien. When a medical provider treats an accident victim, the provider can often place a lien on any future settlements or verdict awards. Effectively, the lien allows the healthcare provider to demand reimbursement from any future settlements the victim secures.

Understand & Pursue a Fair Settlement with Our Help

Katz Kantor Stonestreet & Buckner, PLLC in Princeton offers comprehensive legal assistance to personal injury clients through the region. If you need help understanding how to reach a settlement or what type of settlement option is right for you, then please don’t hesitate to contact us. We offer free consultations to inquiring clients.

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