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Car accident settlements: lump sum versus structured

On Behalf of | Jul 14, 2023 | Car And Truck Accidents

After a car accident, getting a fair settlement from the insurance company can be tricky. There are many hurdles that can stand in the way of the financial recovery you deserve.

What actually happens when you finally receive a fair settlement in your car accident case? How will you receive those payments?

In general, you have three choices: a lump sum payment, a structured settlement involving periodic payments or a combination of both.

Lump-sum settlements

With a lump-sum settlement, you receive all of your compensation at one time. The advantage is that you don’t have to wait to get the entire amount you’re owed. That money is yours to handle how you wish.

By investing the proceeds of a lump sum, you have the potential to earn more over the long term than you could with a structured settlement.

Structured settlements

In a structured settlement, you will receive set payments over a period of time, typically stretching several years or for the remainder of your life. It’s essentially an annuity funded by the insurance company.

This type of settlement can offer tax advantages and provide a steady, guaranteed stream of income over years or decades. However, it also comes with downsides. For example, the interest you earn on a structured settlement may fall short of what you could have earned by investing a lump-sum payment.

Combined settlements

Settlements don’t have to be 100 percent lump sum or structured. They can provide a lump sum now as well as periodic payments in the future.

The bottom line is that there isn’t a one-size-fits-all approach to determining which type of settlement is best. Your lawyer should provide guidance on the pros and cons of each type in the context of your specific situation.