The Disadvantages of Structured Settlements

The days of receiving one big payday from a personal injury lawsuit are long over. The legal system is always evolving, and right now, the common trend is for lawsuits of all sorts to settle out-of-court with a structured settlement. This means that instead of paying the entire amount due right away, the insurance company or other defendant is allowed to pay the injured party over a period of time through an arranged schedule.

The plaintiff that has been injured often agrees to this settlement in order to end the case without being dragged through a very lengthy and expensive court case. It actually can be to the benefit of everyone involved to come to an agreement outside of court, even though the one injured would likely prefer to have one lump sum paid right away. If they want the case settled quickly, that is usually no longer an option. Even if they hold out for a court judgment, they are likely to be stuck with a structured settlement, regardless.

The most obvious disadvantage to this agreement is that the injured party will not receive the money awarded for a long period of time. All of the ongoing medical bills due to the injury will continue to pile up and they often are unable to work for a period of time. While having the regular stream of partial income from the settlement can help make ends meet, most large medical bills are not going to be covered with this agreement. The frustrations of being injured and having everyday life disrupted suddenly is only compounded by the knowledge that they are owed enough money to erase the financial strain but can't actually use the money for years to come.

Another disadvantage of a structured settlement, is the risk that all of the payments may not be carried out in the future. This is especially a concern when smaller companies are making the payments and there is concern they may go out of business or otherwise be unable to pay in the future. Most insurance companies take out annuities to cover the settlement payments, but there is sometimes a concern that the payments may stop, leaving the injured party without a stream of income they often get used to receiving and count on.

There is also a disadvantage for the insurance company because it doesn't look good to have several settlement accounts sitting on their books. Some companies will sell the settlement to a third party, in much the same manner that many injured parties sell their payments to a third company who, in turn, gives them a lump sum right away. It can be confusing for the injured party to understand who they are dealing with when their settlement gets sold, but as long as the payments are uninterrupted they will usually adjust once again.

For the most part, the disadvantages of structured settlements fall on the injured party. Buying annuities allows the insurance company to earn money at the same rate they pay it out, but the injured party has to wait to receive money that is rightfully due to them, and there is nothing they can do about that short of selling the payments and taking a small loss on the total amount they should have received otherwise.


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