Structured Settlement Vs Lump Sum in a Personal Injury Case

When you win a Charlotte personal injury case against an individual or a business that has caused you harm, you may be awarded monetary compensation. This compensation can be delivered in two main ways: through a structured settlement, where you receive payments over a specified period, or as a lump sum, where you receive the entire amount at once. 

Each method of receiving money has its own advantages and disadvantages, and the choice largely depends on the specifics of the case as well as the individual’s personal needs and financial circumstances.

Contact us today for a free consultation and let us help you obtain the compensation you deserve.

Lump-Sum Payments 

A lump sum is the simplest way of receiving the money you’re owed. It involves a single payment where the entire amount is delivered at once. This one-time payment fully covers what the other entity owes you. In some cases, the settlement may involve a series of lump-sum payments made over time.

The Basics of Structured Settlements

A structured settlement involves receiving your compensation in installments over an extended period. For instance, you could receive a specific amount every month for 20 years. These payments are typically tax-free.

Hybrid of Structured Settlement and Lump-Sum

In some cases, it’s beneficial to use both types of payments — lump sums and structured settlements — to best serve the injured party. In this scenario, the person might get a substantial first payment to take care of urgent needs and pay bills. 

After that, they would get a series of smaller payments spread out over time. This arrangement allows them to handle both immediate expenses and secure a steady income for the future.

North Carolina’s Legal Stance on Structured Settlements

In North Carolina, there are two different methods of settling a case. In a lump sum personal injury settlement, a single payment is given to the plaintiff in exchange for waiving the right to future claims related to the incident. 

In a structured settlement, a series of payments are made over time, and court oversight is required as long as the defendant has financial responsibility for injuries. These two methods may also be combined, such as receiving part of your compensation now, and part later. 

North Carolina law requires that a structured settlement must be approved by the court before it can become finalized, however, generally, this is a much slower process than negotiating a lump sum settlement.

lump sum personal injury settlement

Pros and Cons of Structured Settlements

Structured settlements offer several advantages over lump sum settlements. They provide a steady stream of income over time, which can help claimants manage their finances more effectively. Rather than receiving a lump sum payment, which may be spent quickly, structured settlements provide a reliable income source that can help claimants meet their ongoing expenses. 

However, structured settlements are not necessarily the best option for everyone. The payments may be less than what the injured person could have received if they had accepted a lump sum payout. Another downside is that the payments may be taxable.

Pros and Cons of Lump-Sum Payments

A key advantage of a lump-sum distribution is immediate access to funds, which can help address urgent financial needs or fulfilling short-term goals. When you receive a lump-sum distribution, you gain control over the investment of those funds, allowing you to make decisions that align with your risk tolerance and financial goals. 

However, the risk of poor financial management is a significant downside of lump-sum distributions. If you are inexperienced or make poor investment choices, you could lose a significant portion of the funds.

Tax Implications of Structured Settlements and Lump Sum Settlements

The taxation of structured settlements depends on the type of settlement. Structured settlements for personal physical injury cases are income tax-free. This means that the claimant does not have to pay federal or state income tax on the settlement payments they receive. 

In contrast, structured settlements for non-physical injury cases are taxable. These are known as non-qualified structured settlements, and claimants with these settlements will be issued a 1099-MISC for each year they receive payments. 

The claimant must report the payments as income on their tax return and pay the appropriate taxes. On the other hand, the entire amount is typically taxable if you receive a settlement payment as a lump sum.

Call Our Charlotte Personal Injury Lawyers Today!

Deciding between a lump-sum payout and a structured settlement is a major decision. By understanding these pros and cons, you can make an informed decision about which option is right for you. 

Consulting with our Charlotte injury lawyers can help to guide your choice. Contact us at 704.706.2689 for a free consultation.