Should I accept a structured settlement or a lump-sum payment ? This is a very serious issue and you must think carefully before agreeing. You'll have no second chance.
Structured Settlement vs Lump Sum Payment
Structured settlements are tax-free
The biggest advantage is that a structured settlement and its earnings (interests, investments) are tax free at te state and federal level (but not punitive damage or attorney fees). The lump-sum in itself is tax-free but not the subsequent earnings.
Flexibility of structured settlements
A structured settlement in flexible prior to the agreement. It usually cannot be changed thereafter. There have been reports of clauses of non-assignment but some Courts have chosen not to enforce them. That’s why you need a very good broker. A broker that will make you think about every aspect of your life. Indeed, in order to create the best possible structured settlement, you need to take into account many things. That’s what a structured settlement gives you: security. Whereas with a lump-sum, you have your money and that’s it. You deal with it alone. And since many people have no discipline or financial knowledge, they squander it.
Structured settlement annuity rates
Structured settlements are usually funded with government bonds. Government bonds usually have a low interest rate/year. Therefore, a lump-sum, which can be invested into bonds, metals, foreign exchange, can have a higher rate of return. Nevertheless, recipients usually do not have the experience to invest. Moreover, even if the lump sum investments are successful, they will be taxable.
A small settlement?
In 2012, a research found that 50% of structured settlements have value of maximum $50k. the industry there is this tradition that says that if the financial compensation is low, you don’t need a structured settlement. Go with the lump-sum.
How serious is it?
If your disability is above 50% the structured settlement is the best choice.
One of the benefits of certain structured settlements is that they can remain after the death of the annuitant. Those are called guaranteed payments. There is no such thing with a lump-sum.
current portfolio/future needs
A broker will make you thing about your current debt. If you have low debt and are entitle to a low financial compensation, the lump-sum is the best choice: you will be able to pay your debt and invest the rest. But if you have a large amount of debt, you need to tailor your structured settlement so that it can cover it.
Structured settlements alter Social Security, not lump sum
A lump-sum does not change your entitlements. With a structured settlement, maybe you will receive less from the Social Security.
Squandering plaintiff myth
Some brokers says that you must accept the structured settlement or you will squander it within five years, as 95% of the beneficiaries do. That is actually a myth. What is true, is that persons without financial knowledge or limited mental ability, or some whom want to show off to friends, squander it faster and end up worst than before.
Have a structured settlement and sell bits of it?
You can create your structured settlement so that you have a lump-sum today for immediate needs and the rest through periodic payments. You can also accept a structured settlement, but be able to sell parts of it later. To make sure you can sell some of it, make sure there is no clauses of non-assignment on your contract.