Which is Better -- Lump Sum Payments or Structured Settlement Payments?

Once upon a time, the lump sum payment was the only way that accident victims could receive their settlement money. This is a good thing for someone who wants to use the funds to make a big purchase in cash like a car or a house, for example. But lump sum payments have downsides as well. It can be hard to effectively manage a large amount of money. Many people who receive lump sum payments as part of a settlement end up fighting off greedy relatives or friends who want some of the money. Not to mention the stress that comes with finding the right financial advisor to invest and manage the money for you. The wrong choice could lead to the loss of the money you so desperately need. These days, there is an attractive alternative to the lump sum settlement, and it is the structured settlement.

A structured settlement is different from a lump sum payment because it disperses the settlement money in a series of smaller payments spread out over time. This is done with the use of an annuity and offers many benefits over the lump sum payment option. For example, a structured settlement allows the injured person a steady income over a period of time. The time period that payments will be received depends on how much the settlement is and how much each individual payment is.

Structured settlements are tax-free, thanks to a law passed in the 1980's. Not only that, but they're set up to work with inflation. This means that if you add up the total of all the structured settlement payments received, it will add up to more than the total of a single lump sum payment. Another great thing about a structured settlement is that the annuity purchased gains interest over time -- interest that is tax free as mentioned before. If you were to get a lump sum payment, you would be responsible for not only investing but also paying taxes on your investments and interest.

There are, of course, benefits and drawbacks to both lump sum payments and structured settlement payments. If you're due a monetary settlement, it's important to examine these benefits and drawbacks as they relate to you before making a decision. Having trouble deciding what is best for you? First, think about how much money the settlement is. For a settlement that's not that large, a lump sum payment might work best. But for a large amount of money, a structured settlement is probably the wisest way to go. With a structured settlement, you can relax and focus on what really matters, like recovering. You can rest easy knowing that you've got a steady stream of income coming to you on a regular basis. For someone who is already dealing with the stress of a life-changing injury, the peace of mind provided by a structured settlement can be just what the doctor ordered!

Copyright 2007 Jim Sterling - All Rights Reserved

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