Difference Between a Lump Sum and Structured Settlement After an Auto Accident

Car accident on an Indiana road, car after a collision with a heavy truckWhen the negligent truck driver who caused a wreck that left you injured is held accountable and ordered to pay you compensation, part of the settlement involves negotiating how you will receive the money. In most cases, you can ask to receive all of the money in one lump sum, or you can set up a series of payments over a period of years. This is called a structured settlement, and it makes sense in certain situations. 

When You Probably Want a Lump Sum

If you have outstanding medical bills that need to be paid right away and the compensation you are awarded is not a huge amount of money, you might want to receive your payment all at once. It is also important that you are a good money manager if you are going to receive a lump sum. One advantage to a lump sum is that you don’t have to deal with the insurance company on an ongoing basis as you receive payments over several years.

Structured Settlements Make Sense in Some Personal Injury Cases

A structured settlement is complicated by the fact that it usually goes to a third party to manage. The insurance company for the negligent driver or trucking company has to calculate how much they need to pay to fund the settlement. Since the third-party manager will invest the funds and pay you the negotiated amount each pay period, this calculation can be complicated. Aside from this complication, structured settlements could be a good idea if you find yourself in any of the following situations:

  • You are worried about managing money. If you know you are bad at handling money, or you have family members who will hassle you for payouts, you might want to arrange it so that you only receive a small amount of money at a time. Blowing a car accident settlement on a new car, vacation, or even a new home means that you will not have the money you need to pay for medical care and other accident-related expenses.
  • You expect ongoing medical problems for years to come. If the crash left you in need of ongoing medical treatment or physical therapy, you need to make sure you have money available to pay for your care. Likewise, if your condition is likely to deteriorate, you will want to make sure you have the money you will need for home modifications, nursing assistance, and more.
  • There are tax advantages to gradual payments. There can be tax disadvantages to receiving a large sum of money, even if it is compensation for an injury. A financial advisor can help you determine if you will save money in income tax by negotiating a structured settlement.
  • You will not be able to return to work. If the crash has left you permanently disabled and you will be unable to work again, a structured settlement can act like a salary—paying you at regular intervals and guaranteeing income for a certain period of time.

It might be hard to accept that a structured settlement is the most beneficial way for you to receive compensation after a truck crash, but a lawyer can talk you through the advantages.

James R. Keller
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Partner at Keller & Keller
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