What Is a Structured Settlement and How Do They Work?

what is a structured settlement scheduled payments

Congratulations! You won your personal injury lawsuit. You'll finally get the money you deserve to pay off that big pile of hospital bills. 

But how does that work, exactly? Does the defendant hand you a big check at the end of the court case? 

Typically, no. There are many different ways in which a settlement can be paid out to the winning party. A common method is called a structured settlement. 

If you're wondering, "what is a structured settlement?" then keep reading. We'll walk you through the ins and outs of how structured settlements work and why they are used. 

What Is a Structured Settlement? 

When you win a lawsuit, the money that is paid out to you is called a settlement. In lower-stakes matters, a settlement can be small enough that it makes more sense to accept a one-time lump sum. 

However, many settlements are supposed to be used throughout the rest of the plaintiff's life. This may be to cover medical bills, make up for lost wages, or reimburse for other damages that will extend into the future. 

If you choose to receive a large lump sum in cash, then depending on what you do with it, it may be subject to taxation

A structured settlement is when you choose to have your payout dispersed to you on a certain schedule. When you receive these periodic smaller chunks of the settlement, they are not taxable. 

For example, if you win $100,000, it may be possible to elect to receive $10,000 per year for 10 years. Each payment of $10,000 will not be taxed. 

Structured settlements are often used in matters where the plaintiff will need expensive care for years to come. This is common in medical malpractice, personal injury, and worker's compensation suits.

Selling and Purchasing Structured Settlements 

Sometimes, a structured settlement will seem right for the plaintiff at the time, and they will accept. But circumstances can change quickly. 

If you still have many payments left on a structured settlement, but then an emergency comes up, and you're scrambling for cash, you may want to look into a structured settlement buyer. 

The buyer will appraise your settlement and calculate its present value based on factors such as its future value, rate of return, and the number of payments left. Then, they will offer to purchase the structured settlement, usually for less than the total amount of the original settlement decided in court. 

When purchasing structured settlements, the firm will pay you a large amount now and then collect the rest of the payouts on the original settlement schedule. You, as the plaintiff, will not receive further payouts after selling. 

Some firms will try to lowball the plaintiff into agreeing to a price that's much less than what the settlement is actually worth. We recommend doing your research and using an established, trusted firm like Rightway Funding to avoid this issue. 

Explore All Your Structured Settlement Options 

Ultimately, the answer to "what is a structured settlement?" is that it's a system to disburse lawsuit payouts over time. But after that, it can be highly variable. 

You can negotiate factors such as how long it will take for the entire settlement to be paid, the length of time between payments, and a number of other logistics. 

If you are considering accepting or selling a structured settlement, make sure to speak with an expert in order to choose the right payment schedule and tax option for you. 

For more information on how to educate yourself about the law and your rights, be sure to visit the Law section of our blog.

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