Structured settlements offer several advantages that make them a popular choice with individuals. The foremost benefit of a structured settlement is that it provides cash at regular intervals and the money is free of state as well as federal taxes. As against this, the interest accrued from investments made from money obtained through a lump sum is subject to federal and state tax. Also, very often individuals who come into money by acquiring a lump sum are unable to invest it wisely and often spend it wastefully, this is not possible with a structured settlement where small amounts are made available periodically and therefore a person’s spending is regulated.
Loss of money that has been acquired through an installment of a structured settlement is not as severe as loss of money acquired through a lump sum payment. The small amounts are easy to manage and also do not excite the interest of unscrupulous elements as compared to hefty lump sum payments.
With a structured settlement, an individual does not need to worry about planning for long-term investments as the periodic payments can be structured to take adequate care of one’s needs post retirement or in the case of a debilitating injury. Structured settlements are favored by both the defendant and the plaintiff as they can be settled without having to go to court. This saves time and is often cheaper for the defendant who would otherwise have to pay more with an in-court settlement. The risks involved for both parties are reduced with a structured settlement as per which the defendant is contractually bound to pay the plaintiff. Also, attorney costs for a out-of-court negotiated structured settlement are lower than what they would be if a litigation were to be filed in court. Attorney fees can come down by as much as 8% to 10% for a structured settlement achieved out of court. This can mean a saving of thousands of dollars for the defendant as structured settlements can often run into more than a million dollars.
Structured settlements allow insurance companies to provide payment to claimants at a lower cost and the payment schedule can be set according to a claimant’s convenience. A structured settlement can be used to provide for certain costs of an individual right from the stage when he is a minor. The money can be disbursed for college expenses or to meet the costs of higher education. Periodic lump sums made available to an injured person can be used to make medicinal purchases and sustain oneself.
One reason for the popularity of structured settlements is that they can be availed in a variety of formats; these include lump sum payments made periodically when funds are required for medical expenses, education, or marriage; percentage increase annuities that offer annually increasing payments that help to counter inflation; deferred annuities that enable to defer the commencement of payment to a later date; period certain annuities that can be combined with a lump sum payment for receiving payment over a fixed period; and joint and survivor annuities in which payments are continued to the survivor annuitant if the primary annuitant passes away.