Personal Injury

The Pros and Cons of Structured Civil Case Settlements

There is many ways to interpret a wide variety of state and federal laws, but there is only one way to interpret most civil cases.

They cost a lot of money.

Between court and attorney fees, you can lose thousands of dollars during prolonged civil case, and that is just what the plaintiff pays. Defendants-especially defendants involved in class action lawsuits-can lose much more money if a jury verdict or judge ruling goes against them.

The rapidly rising costs associated with litigating civil cases have prompted a growing number of plaintiffs and defendants to reach structured settlements.

What is a Structured Settlement?

Plaintiffs and defendants reached structured settlements long before a jury issues a verdict or a judge makes a ruling. Structured settlements typically require a plaintiff to refrain from taking additional legal actions against a defendant. In return, a plaintiff receives a financial payment from a defendant directly or through a third party, such as a defendant’s insurance company. Insurance companies create an annuity policy for defendants that provide plaintiffs with a consistent stream of personal income.

Settlement payments come in the form of one lump sum or payments structured by the court to run a specified period. Structured settlements often consist of regularly scheduled payments over several years, with a few cases of large settlements paying plaintiffs for the rest of their lives. Defendants have several payment options, including sending checks or money orders, as well as agreeing to automatic deductions from a bank account.

Advantages of a Structured Settlement

In addition to avoiding costly litigation, plaintiffs and defendants enjoy several advantages offered by agreeing to structured settlements. Civil cases settled before a jury or a judge make a decision provides plaintiffs with a significant tax benefit, since personal injury settlement income is not taxed by any form of government. However, some exceptions to the no-tax rule include punitive damages or bank interest that increases the value of the settlement. Agreements structured to avoid litigation offer plaintiffs a steady source of income, which allows them to budget finances more efficiently. Minors and young adults benefit more from lump sum agreements to take advantage of long-term investing options.

Plaintiff attorneys can create annuities that cover specific plaintiff financial needs, including medical expenses to treat a pre-existing medical condition. Most states have passed laws that protect annuities by mandating insurance companies cover the costs of the annuities. Structured settlements offer plaintiffs the flexibility to add a lump sum provision that takes care of expenses that plaintiffs must pay right away, such as debt obligations and expenses associated with healthcare.

Disadvantages of a Structured Settlement

Annuity payments created by a defendant’s attorney might not be enough to cover plaintiff expenses whenever inflation increases. This is why many plaintiffs opt for lump sum structured settlement payments. Some of the money given to a plaintiff falls under the United States Tax Code for federal taxation, such as attorney fees and the money awarded for punitive damages. Most personal injury cases include punitive damages to punish companies and individuals for negligence. Many states have not passed laws similar to the Florida and New York versions of the Structured Settlement Requirement Act (SSPA). The laws require insurance companies to disclose all costs to plaintiffs and their attorneys.

Structured settlements offer more advantages than disadvantages for both plaintiffs and defendants. To determine if a structured settlement works best for you, schedule an initial consultation with a personal injury attorney. Personal injury attorneys that also hold licenses to offer insurance policies allow you to work with one professional for your personal injury case.

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