An Overview on Structured Settlements - Diamond and Diamond Lawyers
  • Monday, 06 September 2021

An Overview on Structured Settlements

Incidents may be deliberate or inadvertent. But what’s certain is that they compel people to face the fear of suffering and even death. Personal injury always inflicts pain on a person’s body, mind, and emotions. It can be minor wounds and bruises. Sometimes it can lead to impairment and loss. Moreso, the invisible marks you’ve sustained can leave you catatonic. 

Physical injuries can be traumatic to many people. Despite the evidence and witnesses, getting compensated is still a complicated process. The lack of ideas and the stress of legal proceedings discourage many people from asserting their rights. 

With the help of a personal injury lawyer, things can become easier. You can be compensated for your injuries, minor or serious. One of the most common forms of repayment is a Structured Settlement. This article will give you an idea of a structured settlement’s nature and functions.

An Overview on Structured Settlements 

How Does a Structured Settlement Work?

A structured settlement is a negotiated stream of payments (financial or insurance) to an individual who won a civil lawsuit. It is either offered by the defendant or requested by the victim or plaintiff to avoid trial. It differs from lump-sum payments. It guarantees financial security to the recipient in the long-run. A structured settlement in Canada was first used as part of a congenital disability claims settlement. It arose from pregnant women who used Thalidomide. Currently, it covers various types of lawsuit settlements such as aviation and construction.

With the structured settlement, you need to ensure company payments over the years. It is quite risky on the victim’s part because he/she must always depend on the company’s solvency. If it shuts down or goes bankrupt, he/she may lose his/her structured settlement instantly. 

Moreover, it includes income tax and spendthrift provisions. More often than not, periodic payments are funded by purchasing annuities with future payments. For this reason, structured settlements are sometimes referred to as periodical payments. It may also be called a structured judgment when incorporated into a trial judgment. 

Types of Structured Settlement Cases

A structured settlement arises from the agreement on a payment schedule. The defendant’s insurance company transfers the portion to another insurer. It is usually an insurer that works on structured settlements. It can be received for different reasons. The list below shows some instances where a plaintiff can request a structured settlement. 

Personal Injury

Personal injury arises from a lawsuit filed by an individual harmed by another individual. Its primary purpose is to seek the rightful compensation for injuries. Structured settlements can provide funds for medical expenses and other related costs. 

Workers’ Compensation

Workers’ compensation is a payment for workers recovering from work-related injuries. These serve to replace lost wages and pay other expenses when injured employees can’t work. 

Medical Malpractice

Doctors can do more harm and damage than help. Sometimes patients get injured due to negligence or utter disregard for their safety. With that, they can request a structured settlement for medical malpractice. If it results in the patient’s death, families, friends, or close relatives can do so. 

Wrongful Death

The structured settlement also applies to families claiming the loss of loved ones. Upon the death of a loved one, beneficiaries may receive a stream of tax-free payments.

Calculating the Amount of a Structured Settlement

A structured settlement can work in various ways. It can act as income replacement or payments for costs. It is essential for the younger ones. Structured settlements for minors can guarantee a stream of tax-free payments for their future. The funds come from an annuity to provide periodic payments to the injured party.

These may be in different forms. They can either be in a lump-sum payment or structured payments over a fixed period. Up-front cash payment can also be considered. It covers more immediate needs and future periodic payments over an extended period. Hence, it can be negotiated and estimated using the following considerations:

  • the length of the structure
  • frequency of payment (monthly, quarterly, semi-annually, annually)
  • the amount that you want to receive in each payment
  • a lump sum payment at the end of the specified period
  • the ending of payments if the plaintiff dies before the end of the structure or payment continuation to your heirs

Since it is locked in for the recipient, it’s virtually unlimited, considering its design and function. But a person may choose to receive it as a lump-sum payment in the future, like after 20 years. It can be received monthly or lump-sums distributed over a specific period. Suppose you and the defendant agree on a structured settlement. You will receive $100,000 per year for ten years. As agreed upon, payments will continue to your heirs before the 10th year. With that, you and your heirs will receive $1,000,000 over the specified duration.  

But since it is a future income stream, you have to estimate it using its present value. If the inflation and interest rates are constant, the money in the bank will grow over time. Even so, you will still receive $1,000,000. The amount to be put in the bank will depend on its present value and fixed interest rates. Assuming that the bank uses a simple interest method, the interest will simply accumulate over time. If the interest rates are set at 10%, the defendant will only have to put $500,000 in the bank since it will earn $50,000 every year. 

Considerations Before Buying a Structured Settlement

Tax implications

It pertains to the effect of a person’s action on taxation. Generally, structured settlements are tax-free.

Life expectancy

It refers to the number of years a person may live. 

Money management skills

If you prefer periodic payments, a structured settlement is a good fit for you. 

Other financial resources available

Before choosing between a structured settlement or a lump-sum payment, you must consider your financial resources. If you don’t need a large amount immediately, you may choose a structured settlement. 

Specific terms of the annuity policy

Annuities guarantee periodic payments over a specific period. 

You can contact Diamond & Diamond Lawyers if you have a question about structured settlements or have experienced an injury and need to seek compensation with the help of our personal injury lawyers.

pro tip icon

Pro Tip

A structured settlement benefits and advantages should always be discussed with your lawyer. Remember that it is completely your decision if you choose a lump sum or structured settlement in a personal injury case.

Speak to a Personal Injury Lawyer Today!

If you’ve sustained an injury and wish to know more about structured settlements, you may seek assistance from Diamond & Diamond’s personal injury lawyers in Toronto. To speak with our personal injury law services, or to set up a free consultation, contact us today, and let’s talk.

FAQs on Structured Settlements

What is the difference between an annuity and a structured settlement?

Most structured settlements are annuities, but they are different from each other. Structured   settlements are periodic payments to the plaintiff in line with specific court cases. A life insurance company funds these through an annuity contract. Meanwhile, annuities can also be used in retirement funds and investments.

What percentage do structured settlement companies take?

Factoring companies usually take 9-18% to cover their operating costs and generate income.

Are structured settlements worth it in a personal injury case?

In general, lump-sum payments are better than structured settlements. But structured settlements offer some advantages. It guarantees that you won’t spend your money immediately and saves it from taxes.

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