Do you have a structured settlement? Know your options and how to get the most out of your money. This guide will give you need-to-know info about settlements.

Lawsuits are a long and arduous legal process. A monetary settlement is the “light at the end of the tunnel,” but not every settlement agreement works the same.

A settlement occurs when two parties come to an agreement before taking the dispute to court. There are two primary types of lawsuit settlement agreements: lump-sum and structured settlements.

Lump-sum settlements are paid out in full, while structured settlements are paid out over time.

Let’s take a closer look at structured settlements to help you make the most out of your agreement.

Structured Settlements In-Depth

Why would two parties enter into a structured settlement?

There are different reasons why a plaintiff may end up with this agreement. These types of settlements are common for personal injury cases. Plus, many plaintiffs prefer to deal with monthly payments instead of one large sum.

Annuity products

There are a few more benefits to receiving a structured settlement:

  • It’s not taxable income
  • Doesn’t impact social security or Medicaid
  • Next of kin can receive payments if you pass away
  • You can create a custom payout schedule
  • Guaranteed payments
  • Ideal for budgeting

Both parties sit down with an attorney to discuss the terms of the settlement. Typically, the opposing party will pay out the settlement in several installments. However, once the details are final, there’s no going back on the agreement.

A few more points to consider:

  • Terms are not renegotiable
  • Lawyer fees may be taxed
  • Some states don’t require settlement fee transparency

Another issue is immediate access to funds. With a lump sum, the money is right there at your disposal. However, you can’t access structured settlement funds outside of the agreement unless you’re prepared to pay massive penalties.

Fortunately, there is a way to access your settlement without paying a hefty price.

Funding the Structured Settlement

The opposing party doesn’t pay the plaintiff directly. They pay into an annuity first, and that annuity distributes the settlement to the plaintiff.

Annuity products are sold through life insurance agencies. These annuities also receive interest, so they’re protected from inflation.

Getting the Most Out of Your Settlement

The IRS imposes strict penalties if you try to get the rest of your money before you’re 59. The only¬†way to receive your payment in full is to sell structured settlement agreements to a company. This option is the best way to get your money without getting penalized.

Companies that buy these settlements also offer full or partial pay-outs. They also work with individuals who have multiple agreements.

Selling your settlement may come in handy if you find yourself in a financial jam. You may want to buy a new asset too, like a new home or car.

Next Steps

If you think you may be entitled to a settlement, talk to a legal professional as soon as possible. Remember these tips as you negotiate your structured settlement terms.

Understanding how settlements work is a critical part of personal finance. Check out the blog to discover even more financial tips and life hacks.