In a personal injury claim, the damages award issued to the plaintiff can sometimes be very great, often in the hundreds of thousands of dollars. In such cases, there can be concerns over distributing the damages in one lump sum payments (such as tax consequences, overspending, etc.).
Thus, the plaintiff is usually given the option to receive monthly payments over time rather than receiving one lump payment. In such cases, the defendant’s insurance provider may utilize an annuity for the damages payments.
An annuity company works with the insurance provider to help with payments (“annuity payments”), thus gaining some profit from the payment arrangement. Such types of payment arrangements are referred to as structured settlements, referring to the organized manner in which the payments are being made.
What Is a Structured Settlement Cash Payout?
When referring to structured settlements, the term “cash payout” can have a few different meanings. First, some people refer to the option of receiving a lump sum as the “cash payout” of the settlement. What they mean is that the plaintiff has chosen to “cash out” the settlement amount rather than receive monthly payments. And technically, “structured settlement” refers to the structured annuity payments rather than the lump sum form of payment.
But in most cases, a structured settlement cash payout refers to a type of arrangement where a financial company actually purchases the plaintiff’s structured settlement. The company then distributes an immediate lump sum to the plaintiff in exchange for the structured settlement. This is often an option when the plaintiff is locked into inflexible periodic payments, but needs additional cash immediately.
In other words, the plaintiff “cashes out” their structured settlement through a funding company. In many cases, the plaintiff has a choice of selling their entire structured settlement or only a portion of it.
What Are the Benefits and Disadvantages of Structured Settlement Cash Payouts?
Receiving cash for structured settlements has many advantages and disadvantages. Some benefits of selling your structured settlement include:
- Being released from inflexible annuity payments
- Obtaining access to a greater portion of your settlement award
- In some cases, the person can make a profit by selling their settlement to a funding company
- Avoiding losses from periodic payments due to inflation, annuity commissions, and other factors (periodic payments may actually reduce the overall amount that the plaintiff receives in comparison with an initial lump sum payment)
Some of the disadvantages of structured settlement cash payouts include:
- Sales of structured settlements are not always allowed by law, depending on the laws of the jurisdiction and the nature of the structured settlement
- Susceptibility to fraud and scams- there are many bogus “funding” companies that take advantage of persons who have won structured settlement awards. For example, a fake company may promise a payment, but will never issue the payment, and then use the plaintiff’s personal information for fraudulent purposes.
- As with an initial lump sum payment, the distribution of large amounts of cash can be unfavorable (especially for young or inexperienced persons who will overspend the money)
Thus, you should always be cautious and weigh all the various factors if you are considering getting a structured settlement cash pay out. In many cases, a person will want to cash out their structured settlement simply out of impatience or as an impulse decision.
Lack of guidance can lead to serious losses for the plaintiff, so it’s advisable to obtain financial and legal counseling when dealing with changes to a structured settlement.
Should I Hire a Lawyer?
Choosing a cash payout for structured settlement is a major decision. It can often involve complex interactions between personal planning and state laws. If you need assistance with a structured settlement cash payout, it’s in your best interest to contact a qualified personal injury lawyer for advice. Your attorney can provide you with guidance and help explain your options to you. Also, in the event of a legal dispute or violation over the structured settlement, your lawyer can represent you in court during a lawsuit.