For the uninitiated, structured settlement sounds like a nightmare of both taxes and civil law. Unfortunately, that tends to make people wary of approaching it as a solid option for funding a settlement.
Yes, most people will be tempted by getting a large lump sum payout. However, they might be unaware of the numerous benefits behind taking the slower path to get paid.
If you’re unfamiliar with the whole process, you’ve come to the right place.
Keep on reading for our thorough breakdown of what structured settlement entails, as well as how they work in practice.
What Is a Structured Settlement?
Let’s start with the basics.
A structured settlement is a specific type of settlement that’s derived from an entity (whether a person or company) winning a civil case.
A traditional settlement will include a lump-sum of cash that’s paid upfront, one time, and it’s intended to be used to cover immediate expenses.
How Do Structured Settlements Work?
As we’ve previously discussed, the traditional version contains the one-time lump sum as an upfront payment. On the other hand, you have structured settlements where you get periodic payments that are guaranteed. These are also known as an annuity.
The main difference between a traditional settlement and a structured one is tax regulation. A structured settlement can become tax-free. After all, any interest or dividends that can be earned due to the investment of the settlement amount will be subject to taxes.
But, an annuity is meant to provide income to the victim throughout their lifetime at a slower pace and is considered tax-free. You can also use your structured settlement money in different ways, and you can check that out here.
When Do You Receive a Structured Settlement?
Usually, a structured settlement will be sent out in four different cases.
The first would be a personal injury case, where someone has been harmed due to the neglect of another. It can be used to pay off medical expenses, as well as compensating for other damages.
The second case is a worker’s compensation. These payments can be used as wage replacement or to pay for medical treatments.
The third type of case would be medical malpractice. Here the injured patient or their families can sue for medical malpractice and use the settlement money to navigate the costs of the damages inflicted by a medical practitioner.
The fourth one is cases of wrongful death. Having a structured settlement given to the family members of the deceased person can be used as tax-free income to replace their lost family member’s income.
Ready to Give Your Investments a Makeover?
Let’s be honest. Sometimes the legal jargon can scare us off really good financial opportunities that we should have taken advantage of.
We hope that our little structured settlement 101 guide gave you a better understanding of how it works and differs from a traditional settlement.
Yet, when it comes to investment strategies, you must always be up-to-date with the latest news and tips. Make sure to check out our ‘money invest’ section to learn all the tips and tricks that will take your portfolio to the next level.