When A Lump Sum Payment Isn’t The Right Choice After A Catastrophic Injury

If you’ve suffered a life-altering injury, the way you receive your settlement can matter just as much as the amount. Many catastrophic injury victims assume a single large payment is always best, but structured settlements often provide better financial protection over time. Our friends at Andersen & Linthorst discuss how structured settlements work and why they deserve consideration in serious injury cases. An experienced catastrophic injury lawyer can help you understand whether this arrangement fits your specific circumstances.

What A Structured Settlement Is

A structured settlement spreads your compensation across multiple payments over months, years, or even your lifetime. Instead of receiving $2 million today, you might receive $100,000 immediately, then $50,000 annually for 20 years, followed by $75,000 per year for life. The payments come from an annuity purchased by the defendant or their insurance company. Once established, the payment schedule typically cannot be changed, which creates both security and limitations.

Why Catastrophic Injury Cases Often Use This Approach

Catastrophic injuries create ongoing financial needs that last for decades. A structured settlement can align compensation with those long-term costs. Common scenarios where structured settlements make sense:

• Spinal cord injuries requiring lifetime medical care
• Traumatic brain injuries with progressive treatment needs
• Severe burns needing multiple reconstructive surgeries
• Amputations with prosthetic replacement costs every few years
• Injuries causing permanent disability and lost earning capacity

These cases often involve settlements exceeding $1 million. Managing that amount wisely requires discipline that many injury victims understandably lack, especially when dealing with trauma, pain medication, and major life adjustments.

The Tax Advantage

Settlement payments for physical injuries are generally tax-free under federal law, according to IRS Publication 4345. This applies to both lump sums and structured payments. However, the growth of funds in a structured settlement remains tax-free as well. If you take a lump sum and invest it, your investment gains become taxable. A structured settlement grows tax-free within the annuity.

Protection From Poor Financial Decisions

Research shows that lottery winners and others who receive sudden wealth often face financial ruin. A National Endowment for Financial Education study found that 70% of people who receive a financial windfall lose it within a few years. Catastrophic injury victims face added vulnerability. Pain, medication, depression, and pressure from family members can lead to questionable spending. A structured settlement removes the temptation by making most funds unavailable for immediate access.

When A Lump Sum Makes More Sense

Structured settlements aren’t always the right answer. Some situations call for immediate access to substantial funds. You might prefer a lump sum if you need to purchase an accessible home, buy specialized medical equipment, or pay for expensive treatments not covered by insurance. Some victims want control over investment decisions and believe they can achieve better returns than the annuity provides. Business owners or individuals with strong financial management experience may reasonably prefer handling a lump sum themselves.

Understanding The Tradeoffs

Once you agree to a structured settlement, changing the payment schedule is extremely difficult. Federal and state laws restrict selling future payments, and doing so typically means accepting far less than the payments are worth. The annuity company’s financial stability matters too. While state guaranty associations provide some protection, choosing a highly rated insurance company is important for long-term security.

Customizing Your Payment Schedule

Flexibility exists in how you structure the payments. You can design schedules that match your anticipated needs, such as larger payments when your children reach college age, increased amounts as you get older and medical costs rise, or periodic lump sums for major expenses like vehicle modifications.

Getting The Right Guidance

Deciding between a lump sum and a structured settlement requires analyzing your medical prognosis, long-term care costs, family situation, and financial goals. This decision affects your security for decades. If you’re facing this choice after a catastrophic injury, speak with an attorney who handles these cases regularly. The right settlement structure can provide stability and peace of mind during an incredibly difficult time. Understanding your options now helps protect your future.