Some lawsuits don’t make it to trial. Instead of going before a judge and jury, the plaintiff and defendant agree on compensation terms. When a person wins a lawsuit, there are several options for receiving structured settlement payments. To learn more about payout options for a cash settlement, keep reading.
Table of Contents
- What Are Structured Settlement Payments?
- 1. Lifetime Income Annuities
- 2. Deferred Lump Sum Payment
- 3. Period Certain Annuities
- 4. Joint and Survivor Annuity Payouts
- 5. Percentage Increase Annuities
- 6. Index Linked Structured Settlement Payments
- 7. Factored Settlement Payouts
- 8. Market Based Settlements
- Final Lump Sum
- Settlement Payment FAQ’s
- How Much Are Settlement Payment Taxes?
- How Can I Sell a Structured Settlement?
- Are You in Need of Lawsuit Funding?
What Are Structured Settlement Payments?
When a plaintiff and defendant come to a lawsuit agreement, they usually settle on a claim with a structured settlement. Both parties negotiate on a funding amount that’s payable by the defendant.
In exchange for the funding, the plaintiff agrees to drop the lawsuit. The money is then distributed over a series of payments, which are typically funded through an annuity.
The Most Common Settlement Payout Options
Compensation for a lawsuit can either be paid as a lump sum or periodic payments through a structured settlement. The payment options can be customized to fit a person’s needs. However, once the settlement terms are agreed upon, the terms cannot be altered.
Here are the most common cash settlement options:
1. Lifetime Income Annuities
A lifetime guarantee structured settlement helps to maintain a plaintiff’s current standard of living. Depending on the company issuing the structured settlement payments, they’ll be sent weekly, bi-weekly, quarterly, monthly, semi-annually, each year, or every other year.
There’s also a death benefit that’s associated with lifetime payments. It’s set up so that the benefits are paid whether or not the payee survives the payment schedule in its entirety.
2. Deferred Lump Sum Payment
Deferred lump sum payments are predetermined funds that payout during life milestones. For instance, a payment might be sent for college funding, retirement, or medical expenses. Settlements payments can be labels as either certain or life contingent.
3. Period Certain Annuities
Structure payment settlements are paid only for a certain length of time. Different modal structured settlement payouts may be used when income is only required for a certain timeframe.
Modal payments are combined with a lump sum at the end of a specific pay period to simulate funds from a bond that’s held until maturity. This type of payout is used for things like college or retirement.
4. Joint and Survivor Annuity Payouts
Joint and survivor annuities are used for two individual annuitants under one contract. In this arrangement, joint and survivor payments continue to the surviving annuitant after the primary’s death. It pays out at the rate it’s equal to or a predetermined portion of the original benefit amount.
5. Percentage Increase Annuities
This type of annuity provides gradual increases over the initial payment offer. It uses a fixed percentage to give annual income boosts to help shield against inflation. Percentage increase annuities are similar to step annuities which gradually increase the initial settlement amount for either a certain period or for a lifetime.
6. Index Linked Structured Settlement Payments
With this kind of payout, future periodic payments will increase every year based on positive changes within the Standard and Poors 500 (S&P 500). However, the increase caps at five percent.
Thankfully, the payments won’t decrease of the S&P 500 declines between two annual measuring points. The initial adjustment is effective on the contract anniversary and future adjustments also occur on anniversary dates. With this option, only structured settlement income payouts are eligible, and they can be used to cover lawyer fees or go to the plaintiff.
7. Factored Settlement Payouts
Factored settlement payments are the result of obligations to payout sporadic payments under settlement terms. Structured settlement payment rights can be bought in the secondary and tertiary settlement market. The rates are affordable and combined with the need/time continuum. Also, the payments from factored settlements are tax-free.
8. Market Based Settlements
Market-based settlements are options for plaintiffs or attorney fee deferrals. It offers participation in the reimbursements of a managed equity market portfolio. The payments are determined by an objective formula. Income payouts vary to reflect the presentation of investment portfolios underlying the chosen investment buckets. It can also be designed in various modes and durations.
Final Lump Sum
A final lump sum is paid out after regular payouts. For instance, if a child is receiving a settlement, they’ll likely receive payments while they’re underage. Once they’re no longer a minor, a large lump sum is given to the recipient. It’s generally given once they leave high school.
To find a company that can help you financially while you wait for settlement funds, click the highlighted link.
Settlement Payment FAQ’s
Now that you know more about payment options, you probably have questions. Here are the most common FAQ’s:
How Much Are Settlement Payment Taxes?
Normally, the IRS only puts tax deductions on structured settlement funds that were negotiated as part of punitive damages. This also applies to settlements due to pain and suffering that wasn’t caused by physical disease or injury. It’s best to speak with a lawyer or tax expert before making monetary decisions with possible tax consequences.
How Can I Sell a Structured Settlement?
The steps to selling your structured settlement involve reviewing structured settlement purchasing organizations, searching for the best deal, and getting court approval. As with any monetary transaction, create a solid plan and speak with a reliable advisor to ask questions about the process.
Are You in Need of Lawsuit Funding?
Structured settlement payments often take a while to payout. Thankfully, there are pre-settlement lawsuit funding options to help you financially while you wait.
If you learned anything from this article, feel free to browse the rest of our blog. We cover a variety of topics from payday loans to business products. Keep reading to discover more.