Two settlement options are available to settle your claim. The first would pay you at the time of settlement a single lump sum cash payment. The second option would offer a periodic payment plan, commonly referred to as a “structured settlement,” which would include an initial cash payment plus a series of benefits over a period of time. The amount and frequency of the payments can be designed to meet individual needs and objectives.

 

While a cash settlement has been the traditional approach to settling liability claims, the many advantages of periodic payment plans have, over the past few years, made them a popular and frequently selected settlement option.

 

 

Here are the answers to some of the more commonly asked questions.

 

 

Question #1. What is a periodic payment settlement?

 

A periodic payment plan is a claim settlement arrangement to compensate for personal injury. Such an arrangement may include an initial “up front” cash payment plus a schedule of future benefits designed to meet future financial needs or objectives.

 

 

Question #2. Why should you consider a periodic payment settlement?

 

 

A periodic payment settlement offers the following significant advantages over a cash settlement:

 

 

A. Tax-Free Benefits To You

 

Pursuant to I.R.C. 104(a)(2) of the Revenue Code of 1986, as amended, all payments are “tax-free”. The code allows for the tax-free accrual of interest on the sum of money used to fund your periodic payment. As a result, you receive more money than investing it yourself.

 

 

B. Future Guaranteed Payments

 

Unlike a cash only settlement, a periodic payment settlement will provide guaranteed benefits at specified payment dates to assure you of financial security. For example, you can receive monthly payments for life or for a specified period of years along with future lump sums of cash at designated intervals.

 

C. Flexibility to Meet Individual Needs

 

A periodic payment plan can be designed to meet your needs. You may wish to provide for future education expenses, supplement a retirement fund, or simply provide for general financial security. The plan can be “tailor-made” to meet your objectives.

 

D. Maximum Security

 

There is also an element of “spend thrift” protection. Since you, as the claimant, have no direct or indirect incidents of ownership in the “asset,” which provides for your right to receive income, it is considered “bankruptcy proof”. That means if you selected a lifetime income you would never run out of payments. Unfortunately, it is a statistical fact that 90% of all cash only payments are dissipated within five years and 70% are squandered in the first year of a minor reaching his or her age of majority. Periodic payments could eliminate the stress associated with the financial responsibility of providing lifetime income.

 

 

Question #3. Would you be better off with a cash only settlement and investing it yourself?

 

In doing so, you would most likely incur substantial tax liabilities on the income produced by your investments. Private investment income is simply not eligible for the tax-free benefits available under the I.R.S. Code.  Also, in contrast to private investments, there are no brokerage fees or expenses when selecting a periodic payment settlement.

 

In addition, periodic settlements are substantially risk free. Investments in stock and other equities can be speculative, carrying with them the risk of loss. Even less speculative investments such as bonds and certificates of deposit, are subject to the risk of investment fluctuation.

 

In summary, a periodic payment settlement provides a competitive rate of return, tax-free benefits, and financial security not available with other investments.