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Up until twenty years ago, anyone who won a lawsuit as a result
of a claim involving worker’s compensation, wrongful death or
accident had to accept a lump sum payment as their compensation.
The payment would be intended to be invested, with the
beneficiary living off of the proceeds for as long as their
recovery was expected to take. In many cases, this type of
settlement works fine, but in other cases, the results are a
disaster.
It is difficult enough for someone who has been
through the trauma of an accident or illness to have to adjust
to a new lifestyle without having to also become an expert in
the art of financial investing. If you have been active all of
your life and you suddenly find yourself in a wheelchair and
having to handle assets of several hundred thousand dollars or
more, you could be overwhelmed. You could hire someone to handle
the investments for you as well as the tax issues, but what if
the person you hired wasn’t trustworthy? What if you hired a
greedy relative who took all of the money? What if you hired
someone incompetent?
These problems, and statistics that
show that people who receive large sums as compensation for
accident, injury, or wrongful death often spend all of their
money in a short period of time, led to Congressional action in
1982 that amended the Federal tax code to allow for
structured settlements. A structured settlement is simply
an agreement between the responsible party and the injured party
that the payments will be made over time, rather than in a lump
sum. The two parties reach an agreement, the party responsible
for payment purchases an annuity, usually through an insurance
company, and the injured party will receive steady income over a
period of years or even a lifetime.
The payments are
adjusted for inflation; the sum of all of the payments will be
greater than if the amount had been paid as a lump sum. Because
the payments are purchased up front as an annuity, the paying
party actually pays less than the sum of the payments, as well.
The result is generally a win-win situation, with the injured
party receiving a steady stream of income over as long a period
of time as necessary, while the paying party does not have to
worry about making monthly or annual payments.
While a
structured settlement is not the ideal payment arrangement in
all situations where a long term injury settlement occurs, it
does work well in many cases where a lump sum payout might be
undesirable.
About the author:
©Copyright 2005 by Retro Marketing. Charles Essmeier is the
owner of Retro Marketing, a firm devoted to informational
Websites, including http://www.Struct
uredSettlementHelp.com/ and http://www.HomeEquityHelp.n
et/
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