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Advantages
The advantages of a structured settlement over a lump sum payout are numerous:
The are Tax Free - As of 1982, structured settlements are tax free, both at the local and Federal level. Lump sum payments can be tax free, but the investment income generated by them is not. If you have concerns about taxes or having to keep up with tax matters caused by interest or investment income, then a structured settlement might be best for you.
They provide additional security - Many people who suddenly obtain large amounts of money, such as those obtained in a lump-sum payment as a result of a personal injury or accident, may suddenly find the world knocking at their door, as long-lost poor relatives, salesmen and con men are always interested in people who are suddenly flush with cash. This is not an issue with structured settlements, as the cash flow is steady but smaller. In addition, there are fewer worries about investing money, both in terms of where to invest it and in terms of whom to trust with the investments. The beneficiary of an annuity-based payment need not worry if a downturn in the stock market will affect their future health care needs, or worry if the investment advisor they hired is scheming to take all of their money.
They can save money - Settlements of this type are often arranged out of court, saving both parties the time and expense of accident litigation, which can often drag on for years with lawyers taking a large portion of any lump sum settlement. The costs of not going to court can be substantial, which leaves more cash available for the long-term care of the injured party.
They are flexible- Depending on the needs of the injured party, the payment period can be for five years, ten years, twenty years, or even a lifetime. If there is a recurring expense every two years, the payments can be structured to meet that every-other-year expense.
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