There is no “universal template” for settlement annuity payments, due to conflicts and legal disputes being different from case to case. However, this doesn’t stop us from discussing the various perks and risks associated with entering into a settlement annuity payment.
Advantages of the settlement annuity payments:
Mostly Untaxed: Settlement annuity payments received from structured settlements (for personal injuries) are generally tax-free.
Settlement annuity payments Breakers:
Settlement annuity payments can break possible deadlocks between a claimant and an insurer.
- Ease of Settlement: It’s generally easier to settle cases with structured settlements, in contrast to lump-sum cash settlements where one pays the whole amount up front.
- Emotionally-secure Communication: Not everyone is able to forgive someone who wronged them immediately. Since structured settlements are facilitated by third parties, this means someone who was harmed would not have to continually communicate with the person who harmed them.
- Versatile: Involved sides can adjust the terms of settlement to tailor-fit the needs of a specific claimant. In fact, structured settlements can even be combined with other arrangements, such as lump-sum payments, to better meet the claimant’s needs. An example of a long-term arrangement would be allotting funds for the claimant’s illness / injury in the event that medical science is able to produce a previously unknown cure.
- Protected by Law: Most states have legislation protecting structured settlements, including safety nets which ensure that the defendant / insurer continues to deliver on their obligations to the plaintiff / claimant.
- Secure and Stable: In an economy frequently rocked by random and unpredictable events, the regularity of structured settlements offers a much-needed sense of reassurance – perhaps even becoming a reliable source of stable income in cases where the claimant doesn’t have a lot of prospects for future work.
- Return of Investment: It’s generally easy for a structured settlement to get you even more than you would if you take upfront, lump-sum settlement annuity payments. This is especially true in lifetime annual payments for people who still have a significant life expectancy, or are expected to yet live for a long time.
Disadvantages of the settlement annuity payments
- Tax-free Exemptions: Some parts of a settlement annuity payments may be exempt from being tax-free, such as attorney costs, punitive damages, damages that are a result of emotional injury (instead of physical), and some others.
- Uncertainty: Certain changes to the economy, such as a sudden recession or market plunge, could affect the structured settlement negatively, resulting in payments being too small to cover the claimant’s needs.
- Lack of Transparency: While certain states, such as Florida and New York, have disclosure laws governing structured settlements that allow claimants to make an accurate, comprehensive assessment of the ups and downs of a settlement offer by an insurer, a few states still lack this legal safeguard.
- Opportunity Cost: Perhaps the most obvious disadvantage of having to secure such an arrangement, not commonly discussed by law firms and articles on the subject of structured settlements, is that something unfortunate has to happen to you before entering into one. As a result, despite the regularity of payments, there is no guarantee – depending on your injuries, especially in cases of catastrophic injury – that your quality of life post-settlement could match or exceed what it was before the incident.
What precautions should you take for the settlement annuity payments?
The usual precautions one should take before entering into settlement annuity payments are actually pretty simple.
Once the settlement annuity payment concludes, its terms are usually unchangeable. As a result, it is best for you to speak up on both present and future concerns while negotiations for a structured settlement are ongoing.
Furthermore, to better understand the consequences of entering into a structured settlement, it is best to discuss the matter with a Certified Public Accountant (CPA), or with a lawyer who specializes in taxes and / or personal injuries.
Finally, always keep in mind: regardless of the situation, if you have questions about a legal matter you aren’t sure of the answers to, ask your lawyer.