Car accidents can result in the offer of a settlement. However, you may have an alternative to a regular lump-sum payment. Accident victims will be making lots of big decisions after an accident that was not their fault. It's important for victims to understand how the form of payment they accept in the settlement affects their total financial situation. Read on and find out more.
Lump Sum Settlements
This is the traditional form of payment after an accident after the victim accepts the settlement offer. Once you have met with a personal injury attorney, they will assist you in determining the correct amount of money you are owed by the other driver's insurance carrier. This step is important because some victims are willing to accept much less than they are owed.
A lump sum settlement is paid in a single payment from the insurer. Being paid in a single lump sum is convenient for many victims. It allows them immediate access to all the money to pay bills and make needed purchases. If they plan to invest the money, it gives them a way to begin earning interest right away. No taxes are owed on this type of payment unless interest is owed, or punitive damages are awarded and are being paid to the victim. Speak with a tax specialist for help with the tax situation.
This way of being paid involves a payment plan in which the victim is paid regular payments rather than a lump sum. In most cases, the insurer purchases a bond with a third-party company that distributes the funds. Doing so protects the victim from the insurer going bankrupt or out of business. One of the biggest benefits of a structured payment plan is that the victim may be offered more money that way.
A structured payment plan lessens the financial impact of the settlement for the insurer and that is why the total amount paid to the victim can be more. In addition to a bigger total settlement, victims can also do a better job of planning their budgets. When the money from the lump sum would already have been spent, a structured plan keeps the money flowing.
A structured/lump sum plan may also be available. This way of being paid involves a lump sum payment of some of the money with the remainder being paid through a structured plan. This can be a good compromise for those that need some upfront cash but want a structured plan.
To find out more about these choices, speak to a personal injury lawyer.