Personal injury cases can end with the plaintiff of the personal injury lawsuit receiving money. This money is often referred to as settlement money. This money goes to the plaintiff to help mitigate costs due to the personal injury, medical malpractice, wrongful death, or even a physical injury. These types of personal injuries often cost money for things like medical bills or even therapy.

But did you know that personal injury lawsuit plaintiffs can receive their settlement money in different ways? One of those payment methods includes what is called structured settlements or settlement annuities. 

What is a Structured Settlement?

In order to accurately understand what a structured settlement is, there are a few other things you will also need to know. First of all, you will need to know what a settlement is. A settlement is the money someone may receive after the resolution of a settlement case. A settlement case is when a wronged party seeks monetary compensation through litigation. Personal injury lawsuits are one example of a settlement case. 

After a settlement case is resolved, the plaintiff, or the wronged or injured party, may receive monetary compensation in the form of a settlement. This settlement money can go toward important expenses like medical bills. 

This settlement money can be given to the wronged party in one of two ways: in one lump sum settlement or through a structured settlement annuity. A structured settlement annuity is like a payment plan for your settlement money. It helps outline how exactly that money will be received if you don't want it all at once. 

Structured Settlement Examples

By choosing a structured settlement plan, you can outline the kind of payment plan that helps you the most. You could set up several future payments or a series of periodic payments. These structured settlement payments could even be set up to grow bigger over time or smaller over time. There are many ways to set up a structured settlement plan. 

Large Initial Payment

Many plaintiffs in a personal injury case may have medical bills they need to pay as soon as they can. Setting up a payment system with a large initial payment can help you have the money you need to pay medical bills and more now.

Regular Payments 

If you are worried about dealing with a large sum of money all at once, and you don't need to make any large payments up front, then you can set up regularly scheduled payments. These payments could come once a month or even once a year. 

Future Payments

You can set yourself financially for the future by setting up future payments. These future payments could be large sums that you receive every couple of years, or regularly scheduled payments you receive later when you enter retirement. 

Structured Settlement vs Lump Sum

There are many reasons to set up a structured settlement rather than receiving one lump sum all at once. Some of the benefits include better organized finances and more peace of mind knowing your money is set up to be the most useful to you.

Easier Money Management

Some people may not necessarily have the resources or financial security know-how to manage large sums of money. By utilizing a structured settlement payment plan, you can get help from a larger organization like an insurance company to keep your money safe. A payment plan can also help you invest your money or set up retirement funding, so you get the most out of your funds. 

More Reliable Payments

When you set up a structured settlement, you are using a company of your choosing to keep and manage your money and the payments made out to you. By using your own company, you won't have to rely on the opposite party, or the defendant, to handle that money or make those payments to you. 

How Do Structured Settlements Work?

Now that you understand settlements and their possible payment plans better, you can more easily understand how a structured settlement works. There are of course steps involved in the litigation process that lead to the structured settlement process. A plaintiff sues a defendant, negotiations ensue, and if all goes well for the plaintiff, a settlement agreement will be made. 

Step 1: A Plaintiff Sues a Defendant

The very first thing that may happen is some kind of personal injury. This could be a physical injury but could also be an emotional or mental injury. There are many other types of cases that can involve settlements like worker compensation and wrongful death cases as well. 

After something like this happens, the wronged party may decide to sue the individuals or entities involved in causing the harm. The wronged party is then referred to as the plaintiff and the parties being sued are referred to as the defendant. 

Step 2: A Settlement is Reached 

Negotiations and litigation will commence between the plaintiff and defendant. Each parties lawyers and sometimes a court ordered mediator are involved in moderating negotiations and reaching a settlement agreement. 

Step 3: A Payment Plan is Established

Once a settlement is reached, the case will close it will be time to establish a payment plan for the settlement funds. When a plaintiff chooses a structured settlement, they might set up an annuity contract with a life insurance company. This company is a third-party that works with the defendant to receive the settlement money they owe, and with the plaintiff to administer to them the money they are owed. Companies like these can be referred to as assignment companies. 

How Do Taxes on Structured Settlements Work?

The general rule for whether settlement money is taxed or not is that personal injury recovery money is usually tax free. The reason this money is usually tax free is because whatever money the plaintiff gets from a settlement is meant to go toward restoring them from the harm or damages they suffered. There can be exceptions to this rule based on the laws in a specific state, but in general, settlement money is not taxed.  

Whether your settlement money is taxable as income taxes or not will depend on several factors. Usually, the taxability of settlement fund depends mostly on what the funds were used for. If the money goes toward qualifying expenses like medical bills or medical treatment, then this money is often tax exempt. But if this money is used for personal expenses, then this money is often tax liable. 

Sometimes the tax liability of settlement money can also depend on how the structured settlement is set up. This can also vary depending on the laws in your case and the details of your particular court case. 

In Conclusion,

Whether you decide to receive your money as a lump sum settlement or through an annuity contract, using an assignment company can help better manage the payments the defendant needs to make, as well as the payments you receive.