Structured Settlement Lump Sum Versus Deferred Annuities Payment
If you’ve been involved in a motor accident, then you’re probably a settlement beneficiary. According to tradition, such awards took the form of structured settlement lump sum payments; this was the only reasonable way that involved parties resolved the dispute.
Nowadays, structured settlement provides a window of opportunity to claimants. One of these is the long term cash payout through annuity payments. This type of payment is meant to cover the damages incurred and medication costs, and for many settlement beneficiaries this type of arrangement offers many advantages as opposed to an annuities lump sum payment.
The biggest merit of deferred annuities payment is that the beneficiary gets a stream of steady income for an established and agreed duration as opposed to a structured settlement payout.
The payout duration can be structured to cover a few years or extended to last the beneficiary’s lifetime. Duration is usually determined by the case severity and the settlement amount in dollars and also the type of contract, terms and conditions.
Each case is unique and certain conditions may make a structured settlement payment unsuitable when compared to future settlement lump sum payout. Structured settlement payment is often regulated to put inflation in check.
This means that the total settlement payments under a deferred payment scheme could be much higher than a structured settlement lump sum payout amount.
Since the structured settlement payment comes out of an annuity settlement purchased upfront, the paying party will in fact owe lesser amount than the total payment.
Tax immunity is another advantage of structured settlement payment. The Federal tax amendment of 1980 exempts structured settlement payments from both Federal and state taxes.
Structured settlement payment purchased annuity earns accrued interest that is used to sustain the recurrent monthly payments.
Structured settlement lump sum payment on the contrary requires that the beneficiary personally invest the payout money. This means that investments proceeds from such a venture will be subject to taxation.
Structured settlement payment is easy to manage, because the regular payments are guaranteed allowing a beneficiary opportunity to channel their energy towards creating the kind of lifestyle they deserve.
The biggest disadvantage of structured settlement payment is that it denies beneficiaries the privilege of purchasing capital intensive items like a new house, and payments of costly medical bills in a single shot.
That said it’s up to you as a settlement beneficiary to make the final decision on the mode of settlement payment to use, whether to go for structured settlement lump sum or distributed settlement payment.
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