What Are Structured Settlements

An Overview of Structured Settlements

In this article, we wanted to provide a good overview of structured settlements. Interestingly, most people have heard this phrase but when asked what these settlements are, and what they mean, not many can provide a detailed answer. Although not everyone would need to understand structured settlements, if you are one that does, the information provided would prove helpful. 

In summary, structured settlements are a type of insurance payment a person received in compensation for some type of personal injury. The intention of this type of policy is to provide the individual with long-term and consistent income as a means of covering not just medical expenses, but also to help with cost of living expenses. What makes this type of insurance different than most is that instead of being paid one lump sum, the individual would receive payments on a regular basis, either monthly or annually. 

By having consistent income, the individual now has the ability to take care of bills for him/her and the family at present time and in the future. In addition, receiving money on a regular basis from a structured settlement offers peace of mind. Obviously, if you have experienced a personal injury, that in itself is difficult enough but then to worry about how the doctors and other creditors will be paid is something you should never have to face. With a structured settlement, the stress of finances is eliminated. 

Overall, structured settlements offer incredible benefits but as with most things in life, a few pitfalls should be understood. Therefore, before you make the decision to sign a formal contract with the insurance company, it would be important to gain insight into a few things so ultimately, you end up making the best decision possible. Remember, structured settlements are designed to be long-term solutions so the things you decide on today would have an impact on your life for some time to come. 

For starters, make sure you ask about the various payment options. Typically, many insurance companies will advise that payments would be paid monthly or annually but in truth, most also pay bi-monthly or a combination of all payment options. In fact, you could choose to have one payment of the year larger than the rest. For instance, you may want a bigger chunk of the policy money at the beginning or ending of the year. In other words, payment options for a structured settlement are generally more flexible than you may initially be lead to believe. 

Another thing you need to consider is what happens if you were to decide to sell the structured settlement. This means instead of receiving regular payments, you would sell the settlement to a special company for a fee and in return, they would give you the lump sum. If you talk to a financial expert, he or she would tell you that the last thing you want to do is sell a structured settlement. While having all the money at once is a very attractive proposition, the reason is that you pay a large portion for that privilege. For this reason, selling a structured settlement should always be a last resort. 

Now, if you find yourself in a situation where you need all the money, which does happen, then it would be imperative to understand the rules associated with your settlement for selling. In some cases, the insurance policy may have a clause that makes it impossible, or at least difficult to sell. Again, before you choose to purchase a policy of this type, make sure you know what the selling options are, if ever needed. 

Finally, the amount of the structured settlement needs to be carefully considered. Of course, you would need to buy what you can afford but again, you want to think long-term. Buying a policy for one dollar amount today may seem adequate. However, but what happens if you hold onto that policy for five years and then something happens where the money was needed. The initial amount may be inadequate because of inflation. Therefore, always think long-term when it comes to buying a structured settlement.