How Structured Settlements can be used for Workers Compensation Claims

Structured Settlement was brought into force through a unique legal arrangement in 1983 wherein settlement between two parties – the claimant who files a lawsuit against the other party, the defendant, for an injury claim or the workers compensation etc., can be settled for the claimant in a structured way of receiving it in installments rather than as a lump sum amount.

To understand it, consider an example. For instance, a claimant may wish to be given $ 10,000 yearly for first 5 years and $ 15,000 for remaining 10 years (given the total compensation amount is $ 2,00,000). The claimant can also choose to have no payments for few initial years and fixed annual installments thereafter to fund retirement needs.

Structured settlements are being used in wide variety of life situations in modern times rather than just being chosen as an alternative way of settling personal injury claims. There are many occurrences of losses to the workers in a factory or an industry where the worker gets severe physical injuries. The law guarantees right to compensation to these workers. The social security benefits are limited to 80% of the worker’s present income, which may get eliminated if the worker opts for a lump-sum settlement. But, if he opts for a structured settlement, he may continue to receive periodic payments along with the social security benefits in the long run and all of it would be free of taxes.

Benefits of Structured Settlement for Worker’s Compensation Claims

There are certain benefits to accepting a structured settlement for workers’ compensation cases as mentioned below:

  • The entire compensation amount offered in structured installments is tax-free, i.e., exempt from federal and state income taxes by the Internal Revenue Code Section 104(a).
  • Even the dividends, interest accrued on and the capital gains from the structured settlement annuities accepted by the workers as the compensation amount are tax-free and provide high yields to the claimant with almost negligible risk.
  • The injured worker can choose when and how much to receive as compensation money and in how many installments. He has complete flexibility in laying down the structure of payments due to him so that he can best allocate his funds for his future medical, educational or other economic and financial needs. He would not have been able to access this flexibility had he accepted a lump sum for his compensatory claims.
  • There is virtually no risk of default at all. The injured worker receives his installments from the most credible life insurance company annuities and from the United States Treasuries, both of which are considered to be the safest investment options available.
  • The injured worker continues to receive these payments as long as he lives. Any external event would not affect his stream of payments, be it the death of the defendant party (employer) , or his eligibility to receive any other social benefits from the government or even his ability to return to work again post recovery.

Important Points to be noted before Accepting Structured Settlement for Worker’s Compensation ClaimsStructured Settlement for Workers Compensation

There are certain important things to be kept in mind before a worker settles for a structured stream of payments in lieu of compensation as lump-sum under the Worker’s Compensation Act:

  • Medicare Set-Aside accounts are needed to take care of the medical portion of the Worker’s Compensation Claim and require a yearly deposit to go into the account regularly. The structured settlements take care of all such costs for the medical needs of the worker. It is important to note that hardly any worker could himself afford a private healthcare facility thus; a structured settlement can help him hold the employer liable to pay for such expenses via his structured settlement. The Medicare Secondary Payer Act wields holds all parties to a suit liable for future Medicare liabilities.
  • It is important to note that the structured settlements offered for worker’s compensation claims are non-transferable. It means that the all worker receiving such compensation cannot sell their structured settlements in return for a lump sum. Only cases of personal injury wherein a structured settlement is agreed upon, qualifies under Internal Revenue Code Section 104(a) (2) to be transferred under the federal and state transfer acts.
  • A properly structured settlement in very important to get the worker all the benefits that he is eligible to receive such as a social security benefit along with the structured settlement claims which will together pay him a higher monthly income in the long run than a lump sum. Moreover, if a worker continues to be disabled after two years, he is eligible for Medicare. The combination of a structured settlement with Social Security Benefits and Medicare in a properly drafted settlement agreement will fetch the worker higher income and better security in the best possible way.