When you’re injured in a car accident, the aftermath can be overwhelming. Between medical expenses, lost wages, and emotional distress, the financial burden can feel insurmountable. For many injury victims, structured settlements provide a practical solution. What is a structured settlement, and how can it help you in your injury case?
This blog explains how structured settlements work, their advantages and disadvantages, and why they might be the right choice for your personal injury case. Whether you're considering a lump sum or periodic payments, this article will help you make an informed decision.
What Is a Structured Settlement in California?
California law allows victims of car accidents to seek compensation for both past and future damages caused by the negligent party. One way of compensating the claimant is through a structured settlement – an arrangement in which the claimant receives periodic payments rather than a large one-time sum.
If you agree to a structured settlement with the at-fault driver’s insurance company, your compensation will be distributed over time. Payments could begin with a larger initial sum, followed by smaller recurring amounts at regular intervals, which may continue for years or even throughout your lifetime.
A structured settlement can be particularly useful if you’ve sustained severe or long-term injuries that require ongoing medical care or if your ability to work has been significantly impacted. Additionally, structured settlements are often beneficial for minors since court approval is required to finalize the agreement.
One of the key benefits of a structured settlement is its flexibility. You can negotiate terms to suit your specific needs, including:
- Duration: How long you’ll receive payments
- Frequency: How often payments will be issued
- Initial payment size: The amount of the first payment versus subsequent ones.
- Future adjustments: Whether you want larger payments later for anticipated expenses
- Lump sum option: Whether a final lump sum payment will be made at the end
- Heirs’ rights: Whether payments should continue to your heirs if you pass away.
How Do Structured Settlements Work After a Car Accident?
Here’s how a structured settlement works in a car accident case:
- Successful claim: The injured claimant wins compensation, either through settlement negotiations or a court judgment.
- Setting the terms: Both parties negotiate the structured settlement terms such as how many payments there will be and how much each payment is. Payments can be customized to increase or decrease over time depending on your needs, such as covering immediate medical expenses or long-term care
- Annuity: The defendant or their insurance company purchases an annuity from a reliable financial institution. An annuity is a contract where the financial institution (typically an insurer) makes periodic payouts to the intended party. It guarantees payments to the injured party over the agreed-upon schedule.
How Are Structured Settlement Payments Calculated?
The calculation of structured settlement payments considers several factors:
- The total settlement amount agreed upon during negotiations
- The cost of purchasing an annuity from an insurance company
- The duration and frequency of payments (monthly, annually, or other arrangements)
- Any specific needs of the claimant, such as future medical expenses or college tuition.
It’s essential to work with an experienced injury attorney who can ensure that your payment plan meets your long-term financial needs.
What Role Does an Annuity Play in Structured Settlements?
An annuity is central to how structured settlements function. It’s essentially an investment purchased by the defendant (or their insurer) to fund your periodic payments. The annuity guarantees that payments will continue as agreed upon, even if the defendant goes bankrupt.
Annuities can be customized to include features like inflation adjustments or survivor benefits. By investing in an annuity, insurance companies ensure that injured parties receive their settlement payments without interruption.
Tax Implications of Structured Settlements
One major advantage of structured settlements is their tax-free status under specific conditions. Payments made on account of personal physical injuries or sickness are generally exempt from taxes under the Internal Revenue Code. However, any interest earned on investments outside the settlement agreement may be taxable.
It’s crucial to consult with both your attorney and tax advisor when structuring your settlement agreement.
Advantages of Structured Settlements for Injury Victims
Structured settlements offer several benefits that make them appealing for personal injury cases:
- Guaranteed income: Payments are made on a regular schedule, providing financial stability.
- Tax-free benefits: Under the Internal Revenue Code, payments for personal physical injuries are typically tax-free.
- Customized payment plans: Payments can be tailored to meet specific needs, such as covering medical expenses or future education costs.
- Protection against poor money management: By spreading out payments, structured settlements reduce the risk of spending all the money too quickly.
These advantages make structured settlements particularly useful for individuals dealing with long-term injuries or disabilities. For example, if you were unable to work due to injuries sustained in the accident, structured settlements ensure you have consistent income while recovering.
Disadvantages of Structured Settlements
While structured settlements offer many benefits, there are also downsides to consider:
- Limited access to funds: You won’t have immediate control over all your money, which could be challenging if unexpected expenses arise.
- Missed investment opportunities: Investing a lump sum yourself might yield higher returns than relying on annuity payments.
- Transparency issues: If the insurer doesn’t disclose the cost of purchasing the annuity, you might not fully understand the settlement’s actual value.
- Premature payment termination: Payments may stop if you pass away earlier than anticipated unless provisions are made for heirs.
Structured settlements can be an effective way to secure long-term financial stability after a car accident in California. However, it’s essential to weigh the pros and cons carefully and consult an experienced attorney before making any decisions. A knowledgeable lawyer can help tailor an agreement that aligns with your unique needs and ensures fair compensation for your injuries.
Structured Settlement Versus Lump Sum: Which Is Better for You?
Choosing between a structured settlement and a lump sum depends on your unique circumstances:
| Factor | Structured Settlement | Lump Sum |
| Financial stability | Provides steady income over time | Offers immediate access to all funds |
| Tax benefits | Typically tax-free under certain conditions | May have tax implications |
| Flexibility | Limited flexibility in terms of amount | Freedom to use all funds as needed |
| Risk management | Reduces risk of overspending | Requires disciplined money management |
For instance, if you’re dealing with ongoing medical bills or need long-term financial security, structured settlements may be ideal. On the other hand, if you prefer full control over your settlement money, a lump sum might make more sense.
Considering a Structured Settlement: Key Questions to Ask
Before opting for a structured settlement, ask yourself these critical questions:
- Will periodic payments meet my immediate and long-term financial needs?
- Do I trust that the insurance company will honor its obligations?
- What happens if I need access to more money than my scheduled payment provides?
Discussing these questions with your personal injury lawyer can help clarify whether this option aligns with your goals.
How to Choose the Right Personal Injury Attorney for Your Settlement
Selecting an experienced attorney is vital when negotiating a car accident injury settlement:
- Look for someone with substantial experience in structured settlements and personal injury claims.
- Check their track record for securing favorable outcomes in similar cases.
- Ensure they communicate clearly and prioritize your best interests throughout the process.
Whether you’ve been injured in a car accident or are considering legal action after a wrongful death, understanding how structured settlements work empowers you to make smarter decisions about your finances.
Get Smart Legal Guidance From Barrios & Machado
Are you or a loved one dealing with the aftermath of a car accident or personal injury? Navigating the complexities of injury settlements can be overwhelming, but you don’t have to face it alone. Contact Barrios & Machado Personal Injury & Accident Lawyers.
At Barrios & Machado, we specialize in securing maximum compensation for our clients through personalized legal strategies, whether you’re considering a structured settlement or a lump sum payout. With over 25 years of combined experience and a proven track record of success, we’re here to guide you every step of the way.
Contact us today for a free and confidential consultation at (714) 515-9696. Let us fight for the settlement you deserve while you focus on healing.
