Structured Settlement vs. Lump Sum

Plaintiffs seeking monetary compensation in personal injury lawsuits and other similar types of cases often hear phrases and terms that they may have never heard before, but that they may eventually become familiar with. All of these terms can be somewhat complex though, especially when it comes to receiving the money from your settlement. After all, you want to be completely sure that you are understanding all of your options and making the choice that’s right for you when it comes to how you receive your money. You’ll often hear the terms “structured settlement” and “lump sum” in particular, so when it comes to structured settlement vs. lump sum payments, it’s important to know how the two differ.

What is a structured settlement?

When a lawsuit finalizes and a plaintiff receives their settlement, they may not receive it all at once. Instead, they might receive a structured settlement, which is a fixed payment schedule that pays out the settlement amount over a predetermined time period. For example, someone might be awarded $250,000, and instead of receiving $250,000 in one payment, they may receive $25,000 every December for 10 years. Payment amounts and schedules will vary by case. Typically, defendants set up these structured settlements for the plaintiffs in the form of annuities, as they tend to offer a more stable way for plaintiffs to receive their payments. Plaintiffs may also have several other options when it comes to customizing the setup of their structured settlement payments, such as delayed payments, large initial payments, and payments that vary in amount.

What is a lump sum?

Unlike a structured settlement, a lump sum payment awards the plaintiff with their settlement amount all at once with one single payment. There are several factors to consider when it comes to choosing a lump sum upfront, such as financial liabilities, money management, financial plans, and so on.

Structured settlement vs. lump sum

When it comes to deciding between structured settlement vs. lump sum payments, there is no one-size-fits-all answer for everyone. This is a unique, independent preference that will be based on your financial situation, goals, the value of your payments, and so on. Some people may benefit from keeping their structured settlement payments intact because they prefer the steady flow of payments on a regular basis, and they feel more secure knowing that they have that guaranteed income coming in. They might feel that they would rather not have it all at once in a lump sum because they might spend it too quickly on the wrong things, and then they may not have that money anymore when they truly need it the most.

On the other hand, some people may feel that they need their settlement money faster for a much larger goal that smaller periodic payments cannot cover. Perhaps they are saving these payments each time they come in to put towards a home down payment, the purchase of a car, the start of a business, or the beginning of a college education or career training. But depending on the amount you receive and the cost of the financial goal you’re working toward, it may take several months (or years) to eventually save up structured settlement payments to reach that goal. For those simply saving these long-term payments just to ultimately reach a larger amount for a specific goal or purchase, a lump sum payout may be the answer.

Compromising between the two

For anyone torn between structured settlement vs. lump sum payments, there is no need to entirely choose one over the other. Depending on your long-term financial goals, your current need for cash, and the value of your structured settlement, choosing a fair balance between the two may be the perfect solution. You may be able to keep some of your structured settlement payments intact, while also selling a portion of them for a lump sum of cash.

Converting from structured settlement payments to a lump sum

If you are receiving settlement money from a lawsuit in the form of structured settlement payments, you may have concerns over being committed to this choice and not having the option to convert those long-term payments to a lump sum of cash. But even if you’ve chosen to receive structured settlement payments, you may have the option, later on, to sell those payments and turn them into a lump sum cash. Working with a reputable structured settlement purchaser, such as MyLumpsum, can help you explore the different options available to you. You also have the option to just sell a portion of your future payments for a lump sum. If you ever do decide to sell more structured settlement payments in the future and receive another lump sum payment, that may also be an option available to you. Contact us today for more information!