If you were awarded a settlement because of an injury you suffered, you likely have many questions about how this money will impact your taxes, existing benefits, and financial future. You can receive a lump sum from your settlement and decide how to invest it all at once, or the court and insurance company may institute a structured settlement arrangement so that you receive incremental payments over a specified period of time.
These are some of the benefits of a personal injury structured settlement to consider as your case approaches resolution.
Are Personal Injury Settlements Taxable?
Is a personal injury settlement taxable? It’s one of the most common questions plaintiffs ask during settlement proceedings. One of the biggest advantages to receiving a structured settlement is the tax benefits. Personal injury settlements are considered to be tax free, although some exceptions may apply to portions of your settlement, including the interest accrued or an award for punitive damages.
Certainty of Income Over Time
An additional reason that plaintiffs benefit from a personal injury structured settlement is the financial certainty of receiving a steady income over time. The payments coming in are predictable and allow you to plan for your future accordingly. You’ll also avoid losing money on market-vulnerable investments or by not managing your finances adequately.
Protected by Insurance in Most States
Many structured settlements are government insured, and in most states they’re covered under state insurance laws, so you can rest assured that your insurer will always fulfill its payment obligations. Even in places that don’t have this protection, most states at least have a safety net for insurance companies so that companies and claims will continue to be paid by the state’s guaranty association.
Customized and Tailored to Your Financial Needs
Contrary to what some people may think, structured settlements can actually be very flexible. You can use a portion of your settlement to pay large medical bills right away and then structure the remaining balance to be paid out to you over a specified amount of time. You can also structure your settlement so that it pays out more at a specific time, perhaps over the next year or two, and then tapers off later. By getting a personal injury advance, you can take care of what you need to now and save the remainder for the future. Alternatively, you can structure your settlement so that it pays out more when you reach retirement and are no longer receiving a paycheck.
As you can see, there are many benefits to receiving a structured injury settlement from a personal injury case. But before you accept any settlement agreement, it’s advisable to contact a personal injury attorney, tax attorney, or CPA to discuss all of your available options. This is important to ensure that you fully understand the investment and tax implications of your decisions in relation to your personal financial situation.
*Novation is not a financial advisor and/or consultant and strongly recommends that you speak to a lawyer and/or accountant before making any significant financial decisions.
