Pros and Cons of Periodic Personal Injury Payments
The vast majority of Colorado personal injury cases do not go to trial because the parties reach a settlement. This settlement generally requires that the person bringing the lawsuit stop any further legal action in exchange for a monetary payment from the liable party (or their insurance company). While these payments are usually given in a lump sum (the whole amount at one time) sometimes a structured settlement is arranged.
What is a structured settlement?
A structured settlement will provide the injured party with regular payments over the course of a specified period of time – for several years or even for the rest of their life. This type of arrangement is particularly beneficial when the plaintiff has sustained a catastrophic injury following an auto accident and will need indefinite support.
A structured settlement is typically funded with an annuity policy taken out by the defendant’s insurer. The annuity provides a continuous flow of income over the term of the structured settlement to cover a variety of anticipated expenses, and in most states, is governed by both state and federal law.
In Colorado, the Structured Settlement Protection Act states that the recipient must live in the state and the local court must approve the agreement. There is a three-day waiting period in place to protect the recipient, the purchasers must advise them in writing of their right to seek professional advice, and approval is granted only if the transaction is considered to be in the best interests of the recipient.
Pros of a Structured Settlement
A structured settlement arrangement can provide a number of positive options for the plaintiff, including:
- Tax benefits, since personal injury settlements for physical injuries are not taxable under the U.S. Tax Code.
- Stable income over a fixed time period, although lump sum payments may be preferable to those looking for a long-term investment or parties who have sustained a debilitating injury requiring future medical care.
- The ability to tailor payments to meet specific needs as well as future demands.
- Insurance laws in most states guarantee that the insurer’s obligations will be covered.
- Structured settlements can be combined with a lump-sum payment to meet all types of expenses.
- Funds can be dedicated to cover unexpected advancements in medical science.
For parties who cannot come to a consensus in their settlement negotiations, a structured settlement can bridge the gap and allow them to reach an acceptable agreement.
Cons of a Structured Settlement
There are also certain drawbacks to structured settlements, such as:
- Certain parts of a structured settlement may be taxed, including punitive damages, certain attorney fees, and damages not arising from physical injury.
- Unforeseen changes in the economy, such as recession and inflation, could render annuity payments insufficient.
- Structured settlements typically cost insurance companies less than lump-sum payments, which the plaintiff needs to take into account before any such offer is accepted.
The rate of return on structured settlement annuities compares to traditionally safe investments such as bonds, but offers a lower rate of return than more aggressive investment options.
Contact an Experienced Colorado Personal Injury Attorney
A settlement, whether lump-sum or structured, is usually a faster, cheaper, and less stressful alternative to taking a personal injury case to trial, but before you accept any settlement, structured or otherwise, call accident attorney Daniel R. Rosen to discuss the pros and cons.