by Thomas D. Begley, Jr., Esquire, CELA
Advantages of Structured Settlements
There are a number of potential benefits to an injured plaintiff in utilizing a structured settlement:
- Fiscal Restraint. The structured settlement prevents the injured plaintiff from squandering the settlement. Many clients receiving personal injury settlements have never had money, have never learned financial discipline, and tend squander the funds in a short period of time.
- Tax-Free Income. Income from the Structured Settlement is income tax-free, if it is for a physical illness or sickness.
- Lifetime Income. A lifetime payment structure can provide lifetime income to the plaintiff. Alternatively, a structure can be for a period of years or can pay out nothing until the plaintiff reaches age 18, and then begin payments over a period of time or a lifetime. A structure can be designed to pay out monies at periodic intervals for payment for college tuition or purchase of a home.
- Creditor Protection. The structure guarantees an income that is free from the claims of the injured person’s creditors until receipt.
- Rated Age. If the plaintiff has a medical condition warranting the establishment of a Rated Age, the periodic payment from the structured settlement can be considerably higher. A rated age is the insurance company’s assessment of how long the plaintiff is likely to live based on his medical condition. A 30-year old man may be rated as having the life expectancy of a 65-year old man. This maximizes the settlement for the lifetime of the plaintiff. The insurance company assumes the risk as to how long the plaintiff will live.
Disadvantages of Structured Settlements
Three disadvantages of a structured settlement are:
- Rate of Return. The rate of return in a low interest rate environment is locked in. It does not increase as interest rates go up.
- Lack of Liquidity. If payments are fixed and an emergency arises, additional funds cannot be obtained short of commuting or factoring the annuity contract.
- Insurer’s Solvency. The solvency of the insurance company providing the structure must be carefully examined.