Structured Settlement is the special form of compensation amount payable for any form of damage done to a party (like injury by medical negligence) by another party against whom the victim files a lawsuit.
One part of the amount paid to the claimant initially and the other part of the larger amount is paid out to that party through installments instead of paying the whole compensation as a lump sum.
These installments can be variable depending on the agreement between the two parties like – a smaller annual amount for next 20 years or a larger amount per year for next 10 years etc. Moreover, the amount for initial few years could vary from the installment amount for years thereafter.
Structured Settlements for People in Middle Years
Structured settlements are extremely popular with the settlement of claims for middle aged people, who have suffered in injury in an accident or due to medical negligence. For instance, suppose a forty year old man is badly injured in an accident and is entitled to the total compensation amount of $2, 00,000.
He may choose to be given $10,000 yearly for first 5 years and $15,000 for remaining 10 years in installments over next 15 years of his life, keeping in mind the fact that he is nearing retirement and his physical disability may not leave him capable to earn enough any longer. Thus, structured settlements not only assure that he receives the benefits of the settlement amount but also receives a continuous flow of non-taxable income to support his needs. The settlements are backed by top-rated highly credible insurance companies.
Structured Settlements are a viable option for middle aged people especially, due to various reasons, like funding the needs of not just the person himself, but also of his family, maintaining a stream of income after the forced change in the nature of job of the claimant due to his disability. If the total amount of loss is greater than $10,000 and the same could be carried forward to the succeeding years in installments, need for a stable and guaranteed constant flow of income for some time.
How Structured Settlement can help Middle Aged People
There are certain ways in which structured settlement can provide help as a compensatory mechanism to people in middle years. They are as follows:
- According to the NSSTA (National Structured Settlement Trade Association), in order to make this form of compensatory mechanism more widespread, the Congress (United States) in 1982 laid down specific tax rules called the Periodic Payment Settlement Tax Act and the Section 104 (a) (2) of Internal Revenue Code stated that the whole amount of structured settlement would be tax-free to the claimant. The interest payable on the settlement amount is also tax-free.
- A middle aged person would always have many concerns for him as well as may grow insecure of being able to cater to the needs of his family. Despite the unfortunate loss, the structured settlement for middle aged people can be designed to meet the future health related and medical needs of the person. He may defer most of the payments to receive them while nearing his retirement time to ensure financial security in near future.
- There is no risk of default generally, or this method of settlement would not have been agreed upon by the court if the defendant were not credible in the first place. Besides, structured settlement is a source of a guaranteed income stream with the freedom to spend the money as per the person’s personal and family needs.
- For someone who has never handled too large an amount at once, chances are that the parent/ guardian might lose that lump-sum money due to his poor financial knowledge and bad financial choices. This risk can be easily avoided by agreeing upon settlement of claims through structured settlement wherein payment in annual installments ensures a continuous flow of income and avoids any risk of windfall losses due to a bad financial choice.
- The claimant in his forties or fifties may wish to buy a house before he finally grows too old to handle any financial or economic matters. He can sell off the structured settlement for specific reasons that require him to pay a large lump-sum amount such as buying a house, funding medical expenses and paying for the higher education of his kids.
Despite the innumerable benefits of guaranteed income stream, no tax burden, flexibility and security of money in structured settlements, there are certain precautions to be aware of before accepting structured settlements as a mode of settling claims by a middle aged person.
Precautions while opting for Structured Settlements by Middle aged People
There are certain precautions for the claimant by using the mode of receipt of payments through structured settlements. They are as follows:
- The middle aged claimant might feel trapped by the periodic payments after a point of time. This happens generally when the claimant is in urgent need of large sum of money and his years of earning are nearing an end. In such a case the smaller amounts received periodically may restrict the freedom of the claimant leaving him with no option but to sell his structured settlement.
- Claimants tend to agree upon periodic receipt of settlement payments through structured settlements but, this way, the claimant is at a loss by foregoing higher rates of return on investment he could have made with a larger lump sum instead of accepting a structured settlement.
- The structured settlements are tailored settlements which are agreed upon by proper negotiation . But once the terms have been decided and formally approved by the court, they cannot be changed in any case. This makes the structured settlements highly inflexible after the terms have been decided upon.
- It is by law that if the original defendant party dies, the income to the claimant will not be hampered. It will continue like any other normal payments from the agreement. But, once the middle aged claimant dies, there are no further payments. So, in such a case it is advisable for the middle aged claimant to agree upon a shorter period of time rather than stretching it for long till his retirement years.
Thus these precautions must be kept in mind or the structured settlement contract can be a big financial problem for the middle aged claimant despite promising a guaranteed and risk-free income stream. But a fair and fine contact can attend to the financial and economic needs of the people in middle ages to a large extent.