What Is a Personal Injury Structured Settlement? – Everything Plaintiffs Need to Know About It
Do all plaintiffs who earn a settlement or damage award in personal injury claims receive lump sum payments?
While that is what often happens, there is another option – a structured settlement. It's an alternative method of dispensing compensation that could benefit claimants.
When the plaintiff negotiates a settlement, they agree to drop any further legal action. The defendant or their insurance company offers a payment in return.
Most settlement payments are made as a lump sum or "all at once." However, many plaintiffs receive regular payments over several years or even for the rest of their lives in some cases.
In Ohio, personal injury victims can receive periodic payments instead of a lump sum settlement. This state allows this option to pay off the damages defendants owe to plaintiffs but only under certain circumstances.
However, Ohio has set strict laws to protect people who have been injured in accidents caused by someone else's actions. Therefore, victims should understand the ins and outs of structured settlements before choosing this alternative. Schuerger Shunnarah Trial Attorneys can also answer why do most personal injury cases settle?
Fortunately, here's all the information personal injury victims need to determine if it's the best option to receive their settlement funds.
Understanding What a Structured Settlement Is
Essentially, a structured settlement is a financial agreement that allows plaintiffs to receive periodic payments over time instead of a lump sum if they have been awarded a large sum of money for their cases.
A person who chooses this option does not get all of the settlement money or compensation at once. Instead, these funds are split into multiple amounts that plaintiffs receive at fixed intervals.
Understanding structured settlements is not complicated. In many civil lawsuits, a person or company must pay money to plaintiffs. Sometimes, responsible parties voluntarily agree to the settlement on their own.
However, those who have been found liable for the wrong may be legally forced to pay damages to the victims if they lose the case in court.
Structured settlements may also result from voluntary agreements between two parties – the victim and the person who caused the accident or injury. This depends on the size of the compensation.
If the sum awarded to plaintiffs is small, they can choose a lump sum settlement. However, structured settlement annuities are a better option for large sums.
Other factors can influence this decision, including the following:
The recipient's preferences and financial needs
Future financial planning
The negotiation process between all parties involved in the case
Overall, plaintiffs choose a structured settlement annuity because spreading large amounts of money over a longer period offers enhanced financial security.
Instead of being awarded a one-time settlement payment, this alternative allows victims to receive guaranteed income over time, which can help them cover costs related to their injuries or legal expenses. Additionally, this eliminates the complications associated with receiving a single sum.
What Are Structured Settlement Annuities?
The defendant may voluntarily agree to pay an annuity instead of a one-time lump sum. Under certain conditions, a structured settlement is ordered.
In both scenarios, the defendant or responsible party puts the settlement money towards an annuity.
A structured settlement annuity is a financial product offered by an insurance company. As the name implies, it involves splitting the money into several amounts that will be delivered in fixed intervals.
These types of agreements often detail how many structured settlement payments the awarded party will receive as compensation for the damages and losses they suffered.
How Do Structured Settlements Work?
A structured settlement is an alternative to a lump sum payment, which may be awarded by the court to the winning party or paid through an insurance company after negotiations.
These parties are often involved in structured settlements:
The claimant: The injured individual or person who files a personal injury lawsuit against the party that caused the accident
The defendant: The person being sued or whom the claimant accuses of causing the injuries
The assignment company: The entity with which the defendant or their insurance company enters into a qualified agreement in order to transfer their obligations to make periodic structured settlement payments
The insurance company: The entity with which assignment companies often work to purchase the structured settlement annuity and make payments to the claimant throughout the term of the agreement
Essentially, the settlement agreement process occurs as follows:
The claimant or plaintiff agrees to settle and release the defendant from liability
The defendant funds the settlement amount and transfers the liability to the assignment company
The assignment company assumes responsibility for purchasing structured settlement annuities from the insurance company and making payments
The insurance company handles the structured settlement payment, making sure claimants receive the benefits
The process seems complicated, but it's intended to get compensation to the claimant by taking the damages and restitution full circle back to them.
Common Payout Options for Structured Settlements
Both parties involved in a personal injury claim can arrange a structured settlement in different ways. The plaintiff's needs and the defendant's willingness to make a fair offer play a key role in this decision.
These are the common arrangements for structured settlements:
Large initial payment with smaller periodic payments: Injured parties who have accrued substantial medical bills or other expenses can benefit from this option. With this arrangement, plaintiffs get a large sum payment upfront but continue to receive smaller periodic payments over time.
Increasing payments: If both parties choose this option, the claimant will receive smaller payments at first, but the amount of money will increase over time.
Decreasing payments: It's the opposite alternative to the previous arrangement. Plaintiffs would receive large payments that will reduce as their financial needs decrease over time.
Delayed payments: If permitted and approved by the court, some plaintiffs could choose to receive compensation later in life, designating a specific time to start receiving structured settlement payments in the future.
Additional payouts for extraordinary expenses: Under certain circumstances, structured settlements may start with a specific amount on a set schedule but allow additional payments to cover unexpected or unusual expenses.
Choosing the right structured settlement arrangement depends on the injured parties' needs, the extent of the harm suffered, how the money will be used, and why both parties are settling the case.
Therefore, victims should seek help from a seasoned personal injury lawyer to evaluate their particular situation, understand the ins and outs of structured settlements, and choose the best option.
Advantages and Disadvantages of Structured Settlements
Structure settlements can be excellent options for different cases, as they offer many advantages under certain circumstances.
Plaintiffs should understand the benefits and risks of each alternative to make the right choice and protect their financial situation.
Pros of Structured Settlements
To sum up, these are the advantages of structured settlements:
Tax-free payments after the settlement
Tax-exempt payments to dependents even if the recipient dies
Flexible structuring and scheduling possibilities
Financial stability for a long period since issuing insurance companies guarantee structured settlement payments and the money is not affected by market fluctuations
Lower risk of impulsive spending and guaranteed future income to cover long-term needs
Additionally, structured settlement payments often yield more than traditional lump sum payouts due to interest. This option can also protect recipients from money-related risks, such as theft or pressure from other people for money.
Cons of Structured Settlements
There are also several disadvantages to structured settlements. Here are the main ones:
Recipients cannot change the terms and conditions of the structured settlement agreement. If the settlement no longer meets their needs or is not enough to cover their living expenses, they cannot change it.
Although they are usually lower than interest, there may be high administrative fees. Insurance companies managing structured settlements often charge high fees. As a result, injured parties may lose part of the compensation sum.
While this option is somewhat flexible, recipients cannot receive structured settlement payments whenever they want or need to. The terms set early in the process determine due dates. This means that victims will not be able to access their funds if there is an emergency.
Investment options are limited for plaintiffs who choose structured settlements. Since they will not receive a lump sum payment, recipients will not have enough money to make potentially higher-return investments.
Understanding the Periodic Payment Settlement Act
In the 1960s, structured settlements did not exist in the US. However, a group of enterprising insurance executives identified injured people's need to have an ongoing stream of income to cover their essential expenses.
These executives came up with the idea of making settlement payments over time. However, the new structured settlements required the same tax advantages as traditional lump sum payouts.
In 1979, the Internal Revenue Service agreed to this proposal, allowing Congress to pass the Periodic Payment Settlement Act. This federal law allows the settlement amount to be divided and paid over time and makes scheduled payments tax-exempt.
Now, injured parties can choose this option to obtain a steady income over a long period and are less likely to squander their awards.
The Ohio State Structured Settlement Protection Act
All states must abide by federal law but can set their own regulations to offer enhanced financial protection to injured parties. This is what Ohio did in 2017.
With the Ohio State Structured Settlement Protection Act, this state established rules and procedures to handle structured settlement payments.
In Ohio, plaintiffs require the court's permission to choose and implement the structured settlement option if it is negotiated outside the courtroom.
However, the jury only grants approval if the settlement agreement is fair and actually compensates the victim with enough money for the damages and losses they suffered.
Additionally, under the Ohio State Structured Settlement Protection Act, all parties should receive professional advice on the structured settlement system before choosing this option.
Plaintiffs considering structured settlement payments can contact and get guidance from the following professionals:
A personal injury attorney
A certified public accountant (CPA)
Any licensed financial advisor with extensive knowledge of the legal and financial implications of a structured settlement
However, Ohio has also set strict rules about who can serve as an adviser in these cases. The professional who advises any party involved cannot benefit monetarily from their decision to accept structured settlement payments.
Furthermore, a comprehensive disclosure statement should be sent to claimants at least ten days before the structured settlement agreement goes into effect. It is outlined by state lawmakers and should include the following information:
Payment due dates
Gross and net amount payable
All fees and payments
Potential penalties if issuing parties miss a payment
Many claimants receive a settlement through a single lump sum payout. However, they might spend this money too quickly.
As a result, Congress enacted the Periodic Payment Act in 1982, establishing this arrangement as an option that provides financial stability to people who have been injured by others' actions.
Now, claimants can choose to split the settlement into multiple parts. Scheduled future payments combat the quick and excessive expenditure and ensure that injured people have a steady stream of income to cover the medical expenses related to the accident and their living costs.
Additionally, Congress added tax advantages to provide enhanced financial support to claimants. Structured settlements allow injured parties to settle lawsuits to receive tax-free income over several years and even for their entire lives.
Today, most states follow the principles of the Periodic Payment Settlement Act of 1982 but also impose their own regulations to provide protections according to residents' needs. Ohio is one of them.
Contact Schuerger Shunnarah Trial Attorneys Today!
At Schuerger Shunnarah Trial Attorneys, we understand that personal injury victims often face many challenges, including mounting bills for medical treatment and lost wages. Therefore, we are fully committed to helping them find the best solution for their cases. And can also help with questions such as how are personal injury settlements paid out in Ohio?
Filing a personal injury claim can be time-consuming and stressful. Negotiations to agree to a fair settlement are even more daunting.
However, our experienced injury attorneys are willing to help victims fight for their rights and negotiate with the defendant or their insurance company to get the compensation they deserve.
A structured settlement can guarantee that victims receive not a large sum they can spend in no time but several tax-free payments that will improve their financial situation. We will guide them to determine if this is the best option for their cases.