What Are Structured Settlements?

Often winners of large settlements from lawsuits get the money as monthly installments rather than a lump sum amount. This can be done on the recommendation of the claimant or the attorney. Such a settlement is called a structured settlement. The installments are normally paid by purchasing annuities, the interest from which may be used to pay the monthly installments.

There is no fixed format to structured settlements. The payment can be made as annual installments or large sums of money every two years. The settlement is distributed in any way that the parties have agreed upon.

Structured settlements may be a good option to consider since they are not taxable. Depending on how the agreement is structured, the tax obligation may be a very negligible amount, if at all.

Usually upon receiving a lump sum of money, the payee might indulge in impulse purchases and the fund will be exhausted. This would leave the payee without any cash to meet future expenses like medical bills etc. A structured settlement is the best option for people who tend to overspend, so that they have money to meet future financial needs. Very often a winner of such a large amount will spend on extravagant things without giving any consideration to future needs.

In case the settlement is made on account of a young child being injured, it is especially important to consider that the child may need the money for a lifetime. This money will fund the child's future needs like education, sports activities and if the child is unable to work to provide an income, this money will be a source of income.

In case the payee is disabled, the best option will be to set up a special needs program. Such a program takes care of any medical expenses accruing in the future. Quite a few attorney and financial planners specialize in this area. The best thing to do in such a situation is to consult a professional in this field if the claimant is facing the prospect of a lifetime of disability.

One major limitation of a structured settlement is in case the payee is interested in indulging in some major expense like property or other lifestyle enhancing products. Future payments from the settlement can not be used to get a loan. It is however a more prudent choice to make to resist spending money on luxury at the cost of not having money to meet day to day needs in the future.

You may also consider taking the money as a lump sum and investing it in high yield investments. You may get better returns on your investment over time than you would from a structured settlement format.

Whatever you decide, do ensure that you take advice from professionals in the field. It is a decision that will affect your financial future. Ensure that you have researched all the pros and cons of each situation and your decision is an informed one, not based on impulse.

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