After a long legal process, your attorney finally helped you negotiate a settlement agreement for an amount of money that you feel comfortable accepting.
You have bills to pay and lost wages for months without work. You need to move forward with your life, and you think you can now. However, there is one last question your attorney wants you to answer. How do you want the settlement paid?
Lump Sum Settlement Payment
A lump sum is having the entire settlement amount paid all at once. This seems like a great idea when you have backlogged bills and mortgage payments.
In Arizona, compensation for pain and suffering is typically not taxable. However, compensation for past or future loss of wages and punitive damages are typically taxable.
One benefit of a lump sum settlement is that you are not relying on an insurance company that can go bankrupt to make periodic annuity payments over an extended period of time.
Structured Settlement Payment
A structured settlement is a payment of damages paid out over a long period of time. The periodic payments are typically tax free. Within this category of annuities, there are several ways to arrange for the payment schedule.
Time certain payments can be in equal or unequal amounts depending on how the agreement is structured. A life only agreement sends payments until the recipient dies.
Delayed payments can be created that allow you to receive money starting at a certain date or age. Structured settlements can be beneficial when you have a minor and you do not what the minor to receive a large amount of money all at once when the minor turns 18. You can structure it so that the minor receives payments at different ages such as 20, 25, 30, 35 etc.
Negatives to an Annuity Settlement Payment
Future income streams, like annuities, need to be calculated in terms of present day value. This means that even though you are may have settled for $100,000.00 paid out over twenty years, each year the dollar devalues because of inflation.
Many insurance companies tend to prefer structured settlements because it means that over the long term they pay less money. Also, should you have an emergency, these structured settlement dollars will be available in the future but not the now.
Finally, structured settlements are called structured because they are not flexible. Once you agree to terms, you keep them for the life of the settlement.
You cannot foresee the future, so this means you are assuming no future life events will require you to need a change in terms.
Call Yearin Law Office Today
Settling a law suit can be a relief but also a time of stress. When making decisions about your settlement options, you should talk through the positives and negatives of your specific situation with an attorney.
For a free consultation, call Don Yearin at the Yearin Law Office today at (480) 502-0708.