Saturday, May 21, 2011

Structured Settlement Payments and Getting Your Facts Straight

A structured settlement is a financial arrangement wherein someone receives payment on a structured basis.  This arrangement was created to the mutual benefit of both the one receiving and the one paying the settlement.  These payments are also set up to reduce the financial burden placed on the insurance companies if they had to pay the full amount upfront.  If you were awarded $1,000,000 for example and the insurance company was forced to pay this all at once it would pose a large burden.  Settlements are arranged so the insurance company can pay you over time.  As a reward for accepting these structured payments you will end up receiving a greater sum of money because you earn interest in the money yet to be paid. In this way the settlement is designed to help the liability holder pay off the compensation over an agreeable period of time, be aware of this if you want to purchase structured settlements.

Now that you know how the structured settlement benefits the liability holder it is also important to know how it benefits the one receiving the settlement as well.  If you are the one who has won the settlement you can structure the income in a variety of ways to meet your current and future needs.  This is done because any time there is a lawsuit the amount the offended party is seeking is usually ridiculously high.  This is done to incentivize the defendant to see that it will cost more in legal fees and if they were to lose and have to pay the huge amount it may be better to offer a settlement.

So an amount is agreed upon from the defendants accountants and the offer is made to the plaintiff.  Here is where some negotiating may take place on the specified amount but once the value is agreed upon the lawsuit is dropped and a settlement is arranged.  Often times you will hear of big corporations who were being sued and then they ‘settled out of court.’  This just means they offered the one suing them a sum of money in exchange for dropping the lawsuit.

If you are offered a settlement you can choose to receive a large amount upfront or receive payments over time.  By choosing payments over time you will receive more money in the end but it comes to you on a scheduled plan, say $3,000 per month for 20 years.  This may seem like a great option but often times you can make more if you wisely invest the larger upfront payment.  But now that you have the facts you will be able to make a better decision when you structure your settlement.