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How Are Personal Injury Settlements Paid Out?

Personal injury settlements are critical sources of financial support after an accident. In addition to medical bills, you probably have lost income because you could not work as you were recuperating. A settlement might be the only way to make you financially “whole.”

Generally, settlements are paid in a lump sum or are structured, meaning they are paid out in installments. Consult the Law Office of Brian P. Azemika if you have a question about whether you have a personal injury claim.

Lump Sum Payments

This is what it sounds like: the defendant (or more likely their insurer) writes a check to your attorney. The amount represents the total amount of compensation you are receiving. So if you negotiate a settlement for $100,000, the insurer writes a check for that amount.

Once your attorney receives this lump sum, he deducts his fee as agreed to in the fee agreement, along with other costs. What remains is sent to you.

With a lump sum payment, you get paid once. Once the defendant pays, they don’t owe you any more money. Also, as part of your settlement, you signed a release. Consequently, you can’t go back and sue the defendant for more money.

Structured Settlements

Lump sum payments don’t work for everyone, so you might ask for a structured settlement. These usually consist of periodic payments over a few years. For example, you might split the settlement into 5 parts and get paid once every 5 years. You should talk with your attorney about how they will deduct their fees and expenses. Some might deduct it all from the first payment, while others might deduct it from each payment you receive.

Which is Better: Lump Sum or Structured Settlements?

There is no right answer. There are advantages and disadvantages to each. Talk with your attorney about your needs.

For example, a lump sum gets you money immediately, which is critical if you have high expenses. Now you can pay off all your bills at once and gain peace of mind. You might also choose to invest the money and earn a rate of return.

However, a lump sum has some downsides. You might blow all the money at once, in which case you will have nothing left. That is a risk if you are not good at budgeting or saving. There might also be negative tax implications to receiving one big lump sum in a year. Your personal injury attorney can help you understand how personal injury settlements are taxed.

Alternatively, spacing out a structured settlement can ensure you don’t spend everything immediately. If you aren’t a saver, this is a good option. On the other hand, you lose out on the ability to invest in it and get strong returns.

Injured in an Accident? Contact Our Firm

Brian P. Azemika is an experienced personal injury attorney. He always discusses with clients what their goals are and whether they hope to receive a lump sum or a structured settlement. If you were injured in an accident, contact us to discuss your legal rights.