Components of a Structured Settlement

Understanding the components of a structured settlement is the key to understanding how you will be paid and on what schedule.

While a structured settlement need only have one component, that which provides for the payout over the life of the structured settlement, most structured settlements have several different components, differing in the amount, the schedule you receive payment on, and the life of payout.

Understanding the components and how they work are very important in terms of maximizing your payout.

All structured settlements include one component that provides for a certain amount of money over the course of the payout. The payout terms are highly variable. Some structured settlements pay for the life of the plaintiff while other structured settlements only pay for a set number of years.

This is usually dependent upon the extent of the injury and what the judge and/or jury, depending on your jurisdiction, feel that the plaintiff is entitled to, based on the extent of the injury suffered.

Similarly, sometimes payments increase with inflation while at other times they are fixed for the life of the payout. Occasionally, a structured settlement will be arranged with fixed payments every month and a balloon payment every year or two.

Another common component of a structured settlement provides for upfront cash for the plaintiff. Plaintiffs often have lots of bills, legal and personal, upon the conclusion of their lawsuit. Indeed, many plaintiffs are on the verge of financial ruin, facing evictions and collection agencies, among other things, by the time a case is concluded.

Courts recognize this and often stipulate that upfront cash be provided to the plaintiff upon completion of the trial. The upfront cash component of the settlement is designed to allow the plaintiff to pay off any debts incurred as a result of the injury and lawsuit as quickly as possible.

If there is any money left over, the plaintiff is allowed to spend or invest that money as he/she sees fit. However, it should be noted that while money directly received from structured settlements is not taxable, any money made from investing any component of the structured settlement, including interest, is subject to local, state, and federal taxes.

In addition to the first component, which pays a fixed amount over the course of the payout, there can be another fixed payment that may last for a certain number of years in addition to the primary component of the structured settlement.

For example, say that a person was permanently injured on the job and could no longer work. Their structured settlement might contain the basic component, consisting of a certain amount of money payable every month, as well as the upfront cash.

Another payout might include more money until that person reaches retirement age and those payments would end when the plaintiff becomes eligible for social security and Medicare.

Just as an example, a worker permanently disabled might get $1000 per month, to increase with inflation, for the remainder of her life.

She might get an upfront payment of $30,000 to settle her debts upon winning the suit, and, in addition, she might get an extra $300 per month until she reaches eligibility for social security and Medicare.