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Benefits of Structured Settlements for Personal Injury Clients

Article Reviewed By Jason McMinn, JD
Jason McMinn is a lead personal injury attorney at McMinn Law Firm.


Unfortunately, over 30,000 people are killed each year in auto crashes in the United States.(1) And for every one person killed in a motor vehicle crash, 9 were hospitalized and 88 people were treated and released from emergency departments.(2) Injuries, such as those from a serious auto accident may be covered financially through a personal injury settlement.

A personal injury settlement can provide for future care, loss of income, and general compensation.

Settlements enable a person to face their new financial future with greater certainty after the accident. There’s bills to be paid. Lifelong injuries may require future surgery or disability care. They may be unable to return to work at partial or full capacity. Personal injury accidents change the financial lives of personal injury clients in sometimes unpredictable ways.

Structured Settlements can provide a measure of safety and security. Thirty years ago, regulations and tax rules changed to make structured settlements a safe choice for survivors of accidents.(3) Under this plan, an injured person can choose to have funds from the settlement paid out on a schedule rather than as a lump sum. There are some strong financial benefits to structured settlements.

Establishing a structured settlement is to take advantage of key benefits – income that is not subject to taxes and set out on a schedule in order to avoid mismanagement of funds.(4)

Structured settlements began out of necessity in the 1970s.(5) Insurance companies saw a need to consider future medical treatment on injury and medical malpractice claims. At that time, regulations did not provide the security that surround structured settlements today.

In 1982, Congress adopted the Periodic Payment Settlement Tax Act only for use by personal injury claimants.(6) At the federal and state level, no income tax is paid on the money.(7) And in the Federal tax code, there is a choice for recipients to have some or all of the money scheduled. Under the act, payments cannot be changed. They cannot be increased, reduced or deferred.(8)

Unfortunately people who get a large amount of money all at one time do not always spend it wisely. Structured settlements give recipients time to assess investment opportunities. It can give them peace of mind knowing that they have options to make smart choices with their money.

A $5 billion industry industry has emerged around the practice of using structured settlements.(9) Settlement consultants, life insurance companies, and more. But not all in the industry have the injured person’s best interest at top of mind. Even after choosing a secure structured settlement, claimants can face pitfalls.

There are companies that could prey on unsuspecting personal injury settlement holders. You may have seen a common television commercial. It opens with a catchy operatic jingle sung by people traveling on a bus. The actor says “I have a structured settlement.” The commercial ends with a viking letting viewers know to call the sponsors if they “need cash now.”

Fortunately, Texas and 48 other states have adopted that seek to protect the settlement holder from harm. While there are some areas of Texas law enacted to protect protect consumers from harm, attorneys can aid clients by engaging clients with the knowledge they need to make the right decision for their futures.

Attorneys guiding personal injury clients into structured settlements may guide the recipient of the settlement on why this style of settlement is typically preferred for the treatment of long term care. With other forces in the market, the benefits of structured settlements should be communicated plainly and clearly.

Structured settlements give injured clients the funds they need today, and well into their futures.

References:

  1. https://www.cdc.gov/motorvehiclesafety/statecosts/index.html
  2. https://www.cdc.gov/nchs/fastats/injury.htm
  3. https://www.coregroupusa.com/application/files/9914/5047/4232/SS_FAQ.pdf
  4. https://www.finance.senate.gov/download/periodic-payment-settlement-act-of-1982-report-97-646
  5. https://www.annuity.org/structured-settlements/periodic-payment-settlement-act/
  6. https://www.law.com/newyorklawjournal/2020/09/21/protecting-personal-injury-victims-in-the-sale-of-structured-settlement-payments/