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The Benefits and Drawbacks of Structured Settlements

By Edited Apr 17, 2016 0 0

Personal injury lawsuits usually require the liable party to pay for compensatory damages of the plaintiff. However, there are instances where the liable party does not have the capacity to make a bulk payment. In such cases, another method of payment may be considered – a structured settlement.

A structured settlement is an arrangement wherein the defendant will make small but periodic payments to the plaintiff. Many states and even countries have recognized the advantages of structured settlements for both the defendant and plaintiff. The following are some of the benefits that can be derived from structured settlements:

  • The plaintiff's tax obligations for the compensation will be greatly reduced.

  • Plaintiffs will use the money in more important expenses.

  • The annuities or periodic payments may be modified to meet the plaintiff's needs and future costs.

  • Structured settlements can pay unanticipated payments.

  • A structured settlement is a good solution to parties whose settlement conditions and negotiations are far apart.

  • It will benefit a defendant who is not capable of making a lump-sum payment.

  • Structured settlement may be considered a lifetime payout for the plaintiff.

Of course not all legal options derive benefits for both parties. Even structured settlements have disadvantages where one or both parties may experience inconvenience. Some of these structured settlement drawbacks include:

  • Insurance companies that are in-charge of the annuity (called assignees) may not have enough resources to make all payments.

  • Defendants may feel trapped by the periodic payments.

  • In most cases, payments under structured settlement are more costly than a lump-sum payment.

  • Inflation does not affect the amount of periodic payments, which mean the plaintiff may receive "less" payment based on the prices of goods and services.

While these disadvantages may be managed by experienced insurance providers and attorneys, there are still a few things that both parties should consider regarding structured settlements.

  • The amount of commission the insurers (assignees) will receive should be regulated.

  • The attorneys of the defendant's party may present overstated compensation value that is way below what the plaintiff deserves to receive.

  • Some lawyers or parties may use the structured settlement to get benefits of their own.

  • Life expectancy should be considered in calculating periodic payments.

Indeed, a structured settlement may be an effective solution to personal injury torts where defendants are incapable of making lump-sum compensation for the plaintiffs. However, both parties should be aware of possible problems that might make things worse for them.



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