How Personal Injury Settlements Are Structured: Lump Sum vs. Structured Payments

In the wake of a serious injury, victims often find themselves navigating a complex maze of legal and financial decisions. One crucial choice looms large: how to structure a settlement. Post-accident expenses can add up to a significant sum. According to the National Safety Council, the average comprehensive costs per injured person in 2022 ranged from $17,500 to $13,111,000.

At Hoffspiegel Law, we have guided countless clients through this decision-making process. We are here to shed light on the two primary legal funding options: lump sum payments and structured settlements.

What Is a Lump Sum Settlement?

A lump sum settlement is exactly what it sounds like — you receive the entire settlement amount in one large payment. It’s like being handed a large check that represents the total value of your claim.

The upsides of lump sum settlements

With a lump sum, you gain instant access to your full settlement funds. This can be particularly beneficial if you are facing significant medical debts or need to make immediate life changes due to your injury.

Receiving a large lump sum payout also gives you the freedom to invest as you see fit. If you are financially savvy or have access to solid financial advice, this could potentially lead to greater long-term gains. 

Getting a lump-sum settlement provides a sense of closure. It can allow you to put the legal process behind you and move forward.

The potential pitfalls of lump sum settlements

While personal injury settlements themselves are generally tax-free, any investment income earned from a lump sumcould be subject to taxation. It is a complex area that requires careful navigation.

Another disadvantage is the potential mismanagement of funds. Suddenly, managing a large sum or structured settlement of money can be overwhelming. Without proper planning, there is a risk of mismanagement or depletion of funds before all your injury-related needs are met.

What Are Structured Settlements?

In a structured settlement, your compensation is paid out in a series of payments over time. Think of it as receiving a regular paycheck from your structured settlement annuity. 

When a structured settlement is awarded, the at-fault party invests the funds in an annuity from an insurance company. This annuity guarantees regular payments over time.

The agreement outlines the payment schedule that the recipient will receive as compensation. Spreading the payments out over a longer period helps maintain financial stability. This prevents the funds from being spent too quickly.

The advantages of going structured

Regular payments can provide a stable income stream. This can be especially beneficial for those with long-term medical needs or permanent disabilities.

Structured settlements are typically tax-free, including any growth in the annuity funding the structured settlement payments. This tax-free status can lead to substantial savings over time.

Payments can be customized to meet your specific needs, and you may choose to:

• Receive larger initial payments to cover immediate expenses
• Include cost-of-living adjustments to account for inflation
• Schedule periodic payments or lump sums for anticipated future needs

The drawbacks of structured payments

Once established, it can be difficult or impossible to change the payment structure. If your financial needs change dramatically, you might find yourself wishing for more immediate access to funds.

Did you know that your future payments depend on the financial stability of the company funding the annuity? While safeguards exist, this is one factor to consider.

Another oversight can be inflation. Structured settlements often provide fixed payments over time. While this can seem advantageous initially, it does not account for inflation. As the cost of living increases over the years, fixed payments may lose their purchasing power, potentially leaving you with less effective compensation in the long run.

The Personal Injury Settlement Process

Let’s break down the settlement process step by step.

1. Initial claim filing

The journey begins when a lawyer helps you file a claim with the at-fault party’s insurance company. Your personal injury attorney will craft a comprehensive claim that outlines the full extent of your losses.

2. Investigation and documentation

Once the claim is filed, a thorough investigation begins. 

This process involves:

1. Gathering medical records and bills
2. Collecting witness statements
3. Analyzing police reports
4. Consulting medical experts
5. Calculating lost wages and future earning capacity

3. Demand letter

After compiling all necessary evidence, your lawyer will draft a demand letter. 

This document outlines the following details:

• The specifics of your case
• The details of your injuries and losses
• The amount of compensation you are seeking

4. Negotiation phase

This is where the back-and-forth begins. The defendant’s insurance company will likely respond with a lower counteroffer. 

As your legal warriors, your dedicated legal team will engage in strategic negotiations. They will leverage their deep knowledge and experience to push for a fair settlement.

5. Mediation (if necessary)

If initial settlement negotiations stall, mediation might be the next step. This involves a neutral third party who helps facilitate discussions between both sides. It is often an effective way to reach a settlement without going to trial.

6. Litigation (if required)

If a fair settlement can not be reached through negotiation or mediation, your personal injury lawyer will prepare to take your case to court. At Hoffspiegel Law, we do not shy away from litigation. Insurance companies know we are prepared to go the distance for our clients.

7. Settlement agreement

Once both parties agree on a settlement amount, a formal agreement is drawn up. This legal document outlines the terms of the settlement, including the amount of settlement money and how it will be paid (lump sum or structured payments).

8. Disbursement of funds

After the settlement agreement is signed, the funds are typically released within a few weeks. If you have chosen to accept a lump sum amount, you will receive the settlement payout in full (minus legal fees and any liens). For structured settlements, the payment schedule begins as agreed.

Factors Influencing Settlement Amounts

While understanding the structure of settlements is crucial, it is equally important to comprehend the factors that influence your total settlement amount. 

At Hoffspiegel Law, we consider a multitude of elements when calculating the value of your claim:

• Severity of injuries: The more severe your injuries, the higher your potential settlement. Catastrophic injuries like spinal cord damage or traumatic brain injuries typically result in larger settlements due to their long-term impact on your life.
• Medical expenses: Both current and projected future medical costs play a significant role. This includes hospital bills, rehabilitation costs, medication, and any necessary long-term care
• Lost wages and earning capacity: If your injury has caused you to miss work or has impacted your ability to earn in the future, this will be factored into your settlement
• Pain and suffering: While harder to quantify, the physical pain and emotional distress caused by your injury are important components of your settlement
• Property damage: In cases involving vehicle accidents or other incidents that damaged your property, repair or replacement costs will be included
• Liability: The clearer the other party’s fault, the stronger your position in negotiations. If liability is shared, it may affect the settlement amount
• Insurance policy limits: The at-fault party’s insurance coverage can sometimes cap the amount available for settlement
• Defendant’s assets: In cases where damages exceed insurance limits, the defendant’s personal assets may come into play

Understanding these factors can help you set realistic expectations. An experienced personal injury lawyer can weigh these factors so you and he can make informed decisions about settlement offers.

Making the Right Choice for Your Future

Deciding between a full lump sum payment and a structured settlement is not just about the money; it’s about your future. It’s about ensuring you have the resources you need when you need them, to recover and thrive after your injury.

At Hoffspiegel Law, we don’t just fight for your right to compensation. We help you understand how to structure that compensation to best serve your current and future needs. Our concentrated focus on personal injury cases means we bring deep knowledge and experience to the table.

We consider factors like:

• Your current financial situation and immediate needs
• Your long-term medical prognosis and potential future medical expenses
• Your ability and desire to manage a large sum of money
• Your overall financial goals and life plans

Remember, there is no one-size-fits-all answer. What works best for one person might not be ideal for another. That is why it is crucial to have an experienced legal team on your side — one that takes the time to understand your unique situation and goals.

Reach a Hoffspiegel Personal Injury Lawyer Today

At Hoffspiegel Law, we don’t take on a large number of cases seeking quick settlements. We work with other injury attorneys and a select group of clients who have been seriously or catastrophically injured, fully investing in each case and each client’s future. We understand the complexities of personal injury law, the intricacies of settlement structures, and — most importantly — the profound impact these decisions can have on our clients’ lives.

We don’t offer free consultations to win your business; we offer them so that we can assess whether we are the right law firm to help you. 

It’s easy to feel small while facing these insurance giants and difficult decisions. But with Hoffspiegel Law, you are not alone in this fight. Don’t let confusion or uncertainty about settlement structures add to the stress of your personal injury claim. 

Call us or fill out the contact form to get started. Remember, time limits apply to personal injury claims in Georgia. Don’t wait to get the legal counsel you need.