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Benefits And Disadvantages: Structured Settlement And Annuity Payments

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If you've recently been injured or faced a catastrophic event at the hands of someone else's negligence, you and your lawyer will likely be suing the other party in court. If you win and the judge awards you a settlement in the case, you have a couple of options on how to receive the funds. You can either receive the money all at once in a lump sum, or have the payments spread out for a designated length of time into annuity payments.

While both options are beneficial, it's important to make the right decision on what will affect your future. Here are a few things to consider before you make a final choice:

Quick Payments

One of the main reasons many people choose a lump-sum settlement payment is because the money can be awarded rather quickly. This allows you to address your immediate need for cash. If you have past due medical bills, household expenses or you need to relocate into a new home, having a quick lump sum payment can help resolve these issues right away.

Keep in mind that once you accept a one-time cash payment, you can no longer receive additional money from the defendant and you may be penalized with a tax on the overall amount of the settlement. 

Structured Payments Over Time

Some judges will order that judgment that the plaintiff was awarded be spread out over a specific course of time. This allows the money to be managed more precisely by the insurance company or the defendant. If the injury was severe or catastrophic, the defendant is responsible for paying a specific amount to you for the rest of your life.

This is beneficial because you will know that an exact amount of funds will be available each month—allowing you to plan your retirement accordingly.

Cashing Out An Annuity Agreement

If you are currently receiving monthly or quarterly payments from a previous cash settlement and you would rather have a lump sum cash amount, you may be able to get the cash you want. Working with a company that specializes in cashing out your settlement can help improve your life with one substantial cash payment.

Some companies will offer you financing that you will have to pay back over time. They will use your existing settlement amount as a down payment or collateral on the loan. No matter how you choose to use your cash payment, it can benefit you both immediately and in the future. 

Supplementing Your Income

If you already have some sort of income coming in or a retirement fund, you can use annuity payments to supplement your income. You could also use a lump-sum payment to pay off credit card bills, your mortgage or an outstanding car loan. Take a look at where you stand financially, before you decide whether to take a huge chunk of money at once or smaller amounts overtime.

When you're injured, one of the last things you want to do is worry about money and debt. With a settlement from an insurance company, you have the freedom to focus on dealing with your injury while relieving some financial pressures off your mind.