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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