What is a Structured Settlement?
If your case has been settled for a large sum of money, you may choose to receive it in a series of payments over time instead of in one lump sum. This is called a structured settlement. It can also be referred to as a structured settlement annuity if future payments are guaranteed through the purchase of one or more annuities.
Benefits of a Structured Settlement
Tax-avoidance is a major benefit of opting for a structured settlement. If your structured settlement is carefully setup, you can avoid paying taxes on the money or greatly reduce the amount of tax you may need to pay.
Choosing a structured settlement payment over a cash settlement payment can guarantee a steady income for the rest of your life. There are many factors that can contribute to blowing through a cash settlement in a very short time. Some people are unable to spend money wisely and some find it difficult to refuse unreasonable financial demands from friends and family members. For those who have been injured, a structured settlement payment ensures that you will always have enough money to take care of any medical expenses and long-term special needs.
Disadvantages of a Structured Settlement
Although selecting structured settlement payments over a cash settlement may seem like the best choice, it does create some problems. For instance, it will be difficult to purchase expensive items, such as a house, with structured payments. You cannot use your settlement as collateral for a loan because it is not possible to borrow against future payments. Also, choosing a structure settlement over a cash settlement means that you cannot invest the lump sum yourself. The interest from annuities used for structured settlement is often much less than the interest you could receive if you invest the cash settlement yourself.
There certainly are many factors to consider when trying to decide between a structured settlement and a cash settlement. Choose carefully because you cannot change your mind once payments begin. It is always a good idea to consult your lawyer and a financial professional before you make your decision.
Resources:
Find out how to sell your structured settlement
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