Generally, I am not a fan of structured settlements since it means that an injured worker’s settlement funds are restricted by an annuity. If and when circumstances change, the annuity does not change with the circumstances. In workers compensation settlements, unlike personal injury settlements, you can’t sell your structured settlement. It is part of an Order where the injured worker is the beneficiary but NOT the owner of the annuity. With that being said, sometimes a partial structured settlement (a up front lump sum of money and an annuity giving monthly income for life), can be something worthwhile for injured workers to consider.
Why should an injured worker consider a structured settlement?
Tax-Free Benefits. All payments are tax free. The IRS Code allows for the tax free accrual of interest on the sum of money used to fund your periodic payment (annuity). As a result, you receive more money than investing it yourself.
Future Guaranteed Payments. Unlike a “cash only” settlement, a structured settlement will provide guaranteed benefits at specified payment dates for specified amount of time that assures you of financial security. For example, you can receive monthly payments for life or for a specified period of years along with future lump sum payouts of cash at designated intervals.
No worries about having to manage a large lump sum of cash on your own.
Flexibility to Meet Individual Needs. A structured settlement can be designed to meet your needs. You may wish to provide for future education expenses, supplement a retirement fund, or simply provide for general monthly expenses. The plan can be tailor made to meet your needs.
Why is a Structured Settlement a better investment option than a “cash only” settlement?
No Tax Liability on Earnings. If you accept a “cash only” settlement and invest it yourself, you would most likely incur tax liabilities on the income produced by your investments. Private investment income is simply not eligible for the tax-free benefits available under the IRS Code.
No Fees or Expenses. Also, in contrast to private investments, there are no brokerage fees or expenses when selecting a structured settlement.
Low Risk. In addition, structured settlements are substantially risk free. Investments in stock and other equities can be speculative, carrying with them the risk of loss. Even less speculative investments, such as bonds and certificates of deposit, are subject to the risk of interest rates going up and down.
If you are settling your workers’ compensation case or if you would like more information on the Virginia workers compensation system, order my book, “The Ultimate Guide to Workers’ Compensation in Virginia” by clicking this link, or call our office today (804) 755-7755.