A structured settlement company, structured settlement broker or a personal injury lawyer in your local jurisdiction will be able to give you more information.
Of.... tort damages, personal injury claims, personal injury compensation and periodic payments.
The Advantages of Structured Settlements
For the recipient, compensation awarded by structured settlement has several major advantages over the award of a lump sum payment:
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Tax Free Income
There is a very significant tax advantage, as income derived from investing a lump sum is counted as wholly taxable, whereas, in most countries where they have been implemented as part of settlement law, periodic payments from a structured settlement annuity are not.
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Removal of Administrative Burden
Large lump sum payments can be awkward to manage. The burden of investing such a lump sum is removed from the victim, who in most cases is likely to be recuperating and / or trying to cope with major changes of lifestyle. Irrespective of their precise circumstances, they are likely to be going through a very difficult and stressful period and unlikely to be able to cope with having to research and implement long-term investment decisions. This could lead to serious consequences if the compensation were to be paid as a lump sum.
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Financial Security
The financial risk of investing the compensation awarded is also largely removed from the victim because that task and the responsibility for it are usually passed to an experienced third party. This would normally be an institution backed by very large assets such as a life insurance company. Moreover, the third party to whom the administration is passed is usually bound by legislation to use only very low risk investments such as Government bonds. Hence long-term income is virtually guaranteed, all remaining risk being pooled by the insurers. The process by which a defendant or the insurer of a defendant transfers the obligation for making payments to a specialist third party is known as Qualified Assignment.
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Flexibility
The forms that structured settlements can assume are many and varied and one of their best features is their great flexibility in this regard. They can be tailored to meet any defined need or requirement of the injury victim, such as the cost of purchasing specific equipment or adapting a property, medical expenses, permanent care expenses or long-term rehabilitation expenses. Variable elements include payment periods, payment amounts, payments to meet specific needs and step increases. Step increases may be paid on anticipated dates when certain events with important financial consequences may occur. Whatever the design of the settlement, it would be overseen by the presiding judge, who would have to be satisfied that it was appropriate to the needs of the recipient.
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A Potential Source of Conflict Removed
Lump sum awards can cause conflicts of interest, particularly between the victim and their heirs. This is even more likely if the heirs are also the victim's carers.
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Reduced Vulnerability of Injury Victim to Manipulation by Others
It is not unknown for injured or otherwise incapacitated recipients of lump sum payments to be put under pressure by others to spend the money in an inappropriate way. There have also been cases of such monies being stolen by relatives, for instance to fund a gambling habit. Recipients of structured settlements are clearly less vulnerable to the ill intent of others than those receiving lump sums.
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You Can't Squander it so Easily!
Although a structured settlement cannot prevent the money being wasted, it at least means that the injury award can only be spent over a long period and not dissipated rapidly. On the face of it, it may sound improbable that a personal injury victim would behave irresponsibly with money intended for their long-term well-being, particularly after going through a long legal battle as well as a painful period of recuperation and forced changes of lifestyle. But consider the following passage:
"A widely cited pre-1975 study by the American life insurance industry indicated that: within 2 months of settlement (award, lotteries, sweepstakes, insurance, inheritances, etc.), 25% of the recipients had nothing left. By the end of the first year, 50% had nothing left. By the end of the first 2 years 70% had nothing left, and within 5 years of settlement 90% had nothing left." **
The situation may be even worse when lump sum damages awards are considered in isolation. Some statistics suggest that 90% of such awards are dissipated within two years.
In most jurisdictions that award structured settlements, there are other benefits which are not as obvious as those listed above, but that can be almost literally life-saving if certain situations arise. Generally speaking, structured settlements cannot be considered common property in the event of divorce. Nor can they be subject to the claims of creditors. They cannot be counted as assets when applying for means-tested social security benefit claims, and so cannot affect them.
- ** John Weirs, quoting from R. Somers, "The Structured Settlement - A Better Way?" (The Journal of Insurance, March / April 1979) in his book "Structured Settlements", Carswell Legal Publications, Toronto, 1984.