Structured Settlements: 3 Easy Examples

Structured Settlement Examples

It’s not always easy to understand how structured settlements work. Most people choose this option not knowing how things go or how it really works.

First of all, a structured settlement is a legal settlement paid out to a plaintiff in periodic payments for a set number of years rather than a one-time lump-sum. This form of settlement comes with significant tax benefits and provides a healthy financial future for the plaintiff.

So to help you get a better understanding, here are a few structured settlement examples of awards and agreements decided upon by the defendant and the plaintiff.

Example #1: Car Accident Victim

At the age of 45, Luke was involved in a car accident and as a result broke two of his feet and had a severe head injury. He was as a result confined to a wheelchair with no chances of recovering.

The other driver had crashed into Luke’s car.

A claim for compensation was made against the reckless driver and because the other driver was insured, his insurance company defended the claim.

A structured settlement was finally negotiated by Luke’s lawyers and the company agreed to pay the claim. The compensation details are as follows;

  • An immediate lump-sum of $500, 000 would be paid to settle Luke’s medical bills, debts, and meet some of his future financial needs.
  • The insurance company would then purchase two personal injury annuities starting at $10, 000 per year, payable in monthly installments for throughout his life. The second annuity was purchased to provide periodic payments to Luke, starting $25,000 per year, payable annually and continuing for either 30 years or his entire life.

This settlement was approved by the judge and the structured settlement payments were tax-free.

Example#2: Injuries Resulting from Medical Negligence

Harper, a 28 year old banker was undergoing spinal cord surgery and in the process, her spinal cord was severely damaged, rendering her a quadriplegic.

The court ruled the case a medical malpractice and a compensation of $3 million was awarded to Harper after several months of negotiations.

From the total amount, she received $1.5 million and decided to purchase a structured annuity from which she would receive around $4000 every month for life. The parties also agreed that she would receive a large lump-sum payment payable every 3 years.

Besides creating a lifetime monthly income enough to sustain her family, the amount she invested in the annuity yielded a higher payout.

The entire amount was tax-free.

Example#3: Man Injured on the Job

Drew was injured on the job while operating a machine, causing him severe injuries.

After a few months of negotiations between his lawyer and the factory’s insurance company, a structured settlement was agreed upon and included the following payments.

  • An annuity of $1500 per month that was enough to sustain his monthly needs and were guaranteed for 10 years from the actual date of the settlement.
  • A personal injury annuity of $15, 000 annually for 10 years.
  • A lump-sum payment of $120,000 payable in 15 years.
  • An immediate lump-sum payment of $250,000.

As per the law, both the annuities and the lump-sum were tax-free.

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