A settlement is money given by the defendant, or their insurance company, in exchange for the plaintiff's agreement to refrain from pursuing any legal claims against said defendant. A settlement can be either a lump sum or a structured settlement. A lump sum settlement is when you receive the money all at once in a single payment. A structured settlement is made up of regular payments over a period of time.
The offer of a lump sum settlement to close out a potential lawsuit is incredibly tempting. The idea of holding a check in your hand for so much money is hard to ignore. However, it is important to keep in mind the short-term benefits of depositing a check for so much does not always outweigh the benefits of long-term structured settlements. There are many pros to structured settlements over lump sum payments.
Statistically, most people spend all of their lump sum settlement within five years. That money, especially if it is to pay your future medical bills and lost wages, is intended to cover your costs for the remainder of your life. A structured settlement that pays you regularly every month forces you to plan for your future. Furthermore, a lump sum payment is treated as income; therefore, your taxes will dramatically go up for that year. You may end up paying a lot of your settlement in taxes. Conversely, if the defendant purchases an annuity that is not under the control of the plaintiff, those payments are tax-free. A professional versed in these matters can help you decide which settlement is best for you and your family.
If you or a loved one was injured while on the job and your employer, or their insurance company, has offered you a lump sum payment as settlement, you may want to consult with an attorney to review the pros and cons. Your attorney can help highlight the short and long term considerations related to your injury and your family. You don't have to rely on the insurance company; there are other people who can help you make this decision.