Structured Settlement Payments vs. Lump Sum Payments
A structured settlement is designed to pay a person a specific amount of money spread out over a specific period of time. It’s original intention – and current primary usage – stems from monetary payouts from a court case. In essence, its structure allows for a person receiving it to have peace of mind that they are going to be compensated for a most likely unpleasant situation for a while. This can help to alleviate some of the stress that may follow in the wake of such unpleasantness.
However, a structured settlement does come with a loophole of sorts, in which a person can potentially forego the structured settlement payments by selling the settlement to a secondary buyer in exchange for a lump sum. In this instance, a person would get their money at once now instead of getting it spread out later. While getting a lump sum payment may look like an attractive option as opposed to receiving structured settlement payments, there are a few differences between the two options that go beyond the payout time frame.
Part of the Solution
The biggest difference between structured settlement payments and lump sum payments is the overall payout that comes to a person. If someone opts for a lump sum payment, they will not receive the full amount of their structured settlement in return. Instead, they will only receive anywhere between 60% and 85% of the entire settlement. While a structured settlement has several variable factors in play that may render a such a reduction a moot point, like the age of the recipient or the overall dollar amount of the settlement, knowing that this reduction exists may be enough to cause a person thinking about the lump sum option to think twice.
Rules and Regulations
The other difference between structured settlement payments and lump sum payments stem from the way a person can use the settlement money. If a person wants to opt for a lump sum, they have to get approval from a state court in order to do so in all but six states. Furthermore, this approval hinges upon the way that a person intends on using the lump sum money. Under court regulations, a lump sum payment can only be used to help a person get out of a financial predicament. Some of the approved instances in which a lump sum is acceptable include:
Payment of unpaid medical bills stemming from an unexpected emergency
Payment of credit card debt or student loans
Covering of sudden funeral costs
On the other hand, the money coming from a structured settlement do not have such restrictions, meaning that the fixed payment can be spent however the person wishes once it arrives.
With all that said, having the option of a lump sum payment can be a welcome relief for the person that finds themselves in a rough financial bind – particularly if said bind directly correlates with the incident that ended up producing the structured settlement in the first place. Even though it may cost a person a few dollars in the long term, it may be able to buy a person the comfort that they need in the short term.
A structured settlement is designed to pay a person a specific amount of money spread out over a specific period of time. It’s original intention – and current primary usage – stems from monetary payouts from a court case. In essence, its structure allows for a person receiving it to have peace of mind that they are going to be compensated for a most likely unpleasant situation for a while. This can help to alleviate some of the stress that may follow in the wake of such unpleasantness.
However, a structured settlement does come with a loophole of sorts, in which a person can potentially forego the structured settlement payments by selling the settlement to a secondary buyer in exchange for a lump sum. In this instance, a person would get their money at once now instead of getting it spread out later. While getting a lump sum payment may look like an attractive option as opposed to receiving structured settlement payments, there are a few differences between the two options that go beyond the payout time frame.
Part of the Solution
The biggest difference between structured settlement payments and lump sum payments is the overall payout that comes to a person. If someone opts for a lump sum payment, they will not receive the full amount of their structured settlement in return. Instead, they will only receive anywhere between 60% and 85% of the entire settlement. While a structured settlement has several variable factors in play that may render a such a reduction a moot point, like the age of the recipient or the overall dollar amount of the settlement, knowing that this reduction exists may be enough to cause a person thinking about the lump sum option to think twice.
Rules and Regulations
The other difference between structured settlement payments and lump sum payments stem from the way a person can use the settlement money. If a person wants to opt for a lump sum, they have to get approval from a state court in order to do so in all but six states. Furthermore, this approval hinges upon the way that a person intends on using the lump sum money. Under court regulations, a lump sum payment can only be used to help a person get out of a financial predicament. Some of the approved instances in which a lump sum is acceptable include:
Payment of unpaid medical bills stemming from an unexpected emergency
Payment of credit card debt or student loans
Covering of sudden funeral costs
On the other hand, the money coming from a structured settlement do not have such restrictions, meaning that the fixed payment can be spent however the person wishes once it arrives.
With all that said, having the option of a lump sum payment can be a welcome relief for the person that finds themselves in a rough financial bind – particularly if said bind directly correlates with the incident that ended up producing the structured settlement in the first place. Even though it may cost a person a few dollars in the long term, it may be able to buy a person the comfort that they need in the short term.
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