After agreeing to a settlement in a personal injury case, claimants may wonder how personal injury settlements are paid out. Your personal injury settlement or judgment is the full compensation you’ll receive for your claim via a court verdict or negotiations with the opposing party.
Personal injury settlements are generally paid out in one of two ways: lump-sum payments and structured settlements. The specific payment method that will apply in your case depends on several factors, including the severity of your injury, the amount of your settlement, and your personal preferences as the injured party.
Understanding Personal Injury Settlements
A personal injury settlement or judgment is the amount of money owed to the plaintiff at the conclusion of a personal injury case. The parties’ attorneys may negotiate an appropriate amount, or a court may enter a judgment for the plaintiff’s damages. Regardless of whether the case is resolved via settlement or verdict, the costs, such as attorney fees and medical bills, will be subtracted from the final sum, and the remainder disbursed to the plaintiff.
Personal injury settlement payouts can take several forms. They are generally paid out as a lump sum or as structured payments, depending on the nature of the settlement agreement or judgment and the claimant’s preferences.
Common Personal Injury Payment Methods
There are two common methods of payment for personal injury settlements: lump-sum payments and structured settlements.
Lump-Sum Payments
A lump-sum settlement payment is a single, one-time payment to the claimant, typically consisting of the entirety of the settlement. Accepting a lump-sum payment has certain advantages, such as providing immediate access to funds and making it easy to manage the entirety of the settlement at once. However, lump-sum payments pose the risk of quickly depleting your settlement if your funds aren’t managed carefully.
Structured Settlements
Structured settlements are an alternative method of payment for personal injury claims. These arrangements involve regularly scheduled annuity payments over an agreed-upon period, slowly adding up to your full settlement amount plus interest.
Structured settlement schedules vary based on the payee’s needs. Typically, a structured settlement will pay installments monthly, annually, or on a custom schedule determined by the parties in advance. Some structured settlements start with a lump-sum payout of an agreed amount, followed by smaller regular payments until the full settlement is paid.
Structured settlement agreements have certain benefits, including the guarantee of steady income over time, tax advantages, and long-term financial security. However, structured settlements generally can’t be modified once agreed on, resulting in limited financial flexibility and an inability to access the full amount of your settlement at once if needed.
Which Payment Method Is Right for Me?
The question of which payment method is best varies by person, depending on their circumstances and the settlement amount. Always speak with an attorney before deciding on a payout method for your personal injury settlement to ensure you choose the best option for your case.
How Long Does It Take To Get a Personal Injury Settlement Check?
Generally, a personal injury settlement check is received about two to six weeks after an agreement is reached. However, complicating factors in more complex cases may delay payment.
After the parties reach a settlement agreement in your case, the insurer will start the process of issuing your payout through the agreed-upon method. Outstanding costs will be deducted from your total settlement. You’ll then receive your lump sum or your first structured payment.
Your case may involve factors that delay the payment process, including waiting periods for insurance company processing, deductions for outstanding expenses, and additional court processing time if a judge’s approval is still needed.
Factors That Influence How Settlements Are Paid Out
Several factors can influence how your personal injury settlement is paid out. These include the following:
Type of Injury and Amount Awarded
The nature and severity of your injury, how fault is apportioned, and the settlement amount can impact how the money is paid. Larger settlements often call for structured payouts, both for ease of payment on the defendant’s part and simplified financial management for the claimants. Smaller settlement payouts, however, are often paid in lump sums.
Negotiated Terms
The negotiated terms of your settlement agreement govern your payout structure. Lengthy negotiations over these terms can extend your payout timeline. The terms themselves also can lengthen the payout process, depending on the structure that the parties agree upon.
Insurance Company Policies
Insurance company procedures and policies can affect payment schedules, particularly in car accident cases. While insurers are legally required to pay out settlements in a timely fashion, internal policies can still affect the terms an insurer is willing to accept and how they handle settlement payouts.
Liens or Medical Bills
Before a settlement can be disbursed to the claimant, outstanding expenses such as liens, medical bills, and attorney fees must be deducted from the settlement total. Occasionally, additional negotiations are necessary to resolve liens and other outstanding costs. Thus, calculating, deducting, and resolving these expenses can slow the payout process.
Taxes on Personal Injury Settlements
Whether your personal injury settlement will be taxed depends on the type of damages you receive.
Economic damages, which compensate plaintiffs for financial costs resulting from their injury, are not taxable. This is because economic damages cover the money you have lost rather than providing you with new income.
However, there are key exceptions to this rule. Economic damages for lost wages are taxable income because if you had earned these wages without missing work, you would have paid taxes on them. Previously deducted medical costs are also taxable.
Non-economic damages for losses such as pain and suffering, grief, and similar non-financial costs are non-taxable as long as they are connected to a physical injury. However, non-economic damages unrelated to a physical injury are considered new income and subject to taxation.
Punitive damages are also taxable. They are designed to punish the defendant and deter future harm rather than compensate you for your losses. Therefore, they are considered taxable income.
Finally, any interest you collect on your settlement is also taxable.
Tips for Managing Settlement Funds
It’s important to manage your settlement funds carefully after receiving your payout. Tips for responsibly managing your settlement money include the following:
- Create a financial plan or consult a financial advisor: Plan how your money will be saved and spent.
- Invest wisely: Placing your money in high-yield savings accounts and stock market funds can maximize your total earnings.
- Budget for future expenses: Budgeting is particularly important in cases involving structured settlements, where you will only have a limited amount of the funds available at a time and can’t easily access the rest of your funds.
- Protect your assets from creditors: Consulting an attorney or a financial advisor can help you allocate your payout funds so that creditors don’t quickly deplete them.
Frequently Asked Questions
Common questions we receive from clients in the process of receiving personal injury settlement payouts include:
Can I Change My Payout From a Structured Settlement to a Lump Sum?
While structured settlements generally aren’t modifiable, you might be able to change your structured settlement to a lump-sum payment by selling it to a third party. However, selling a structured settlement typically results in a deeply discounted lump-sum payout. Such a result would leave you with significantly less money overall than keeping your structured settlement. Before opting to sell your structured settlement for a lump sum, speak with an attorney to fully understand the consequences.
What Happens if I Need Emergency Funds but Have a Structured Settlement?
Under a structured settlement agreement, you cannot access your full settlement amount at once. It’s possible to structure your settlement to receive a single lump-sum payment followed by smaller structured payouts. This arrangement may enable you to pay off major expenses immediately while still receiving guaranteed payments throughout the structured agreement. However, if you already have a structured settlement in place, it can be hard to renegotiate its terms or otherwise access your total settlement. If a financial emergency arises, speak with an attorney to learn your options.
Are There Fees for Receiving My Settlement?
Receiving your settlement on its own does not incur fees. However, costs such as medical liens, attorney fees, and other expenses must be deducted from the settlement before any funds are disbursed to you.
How Do Personal Injury Settlements Affect My Eligibility for Federal Benefits?
It’s possible that receiving a personal injury settlement can affect your eligibility for federal benefits such as Medicaid or Supplemental Security Income. The $2,000 asset limit for a single SSI recipient means that a lump-sum payment can quickly render you ineligible for continued benefits. Talk to an attorney about your options to avoid putting your benefits at risk.
Contact Gervelis Law Firm Today
The process of receiving a personal injury settlement payout is complicated, and it can be difficult to try to navigate alone. An experienced personal injury attorney can help you secure a strong settlement and determine the payout option that is best for you. The capable attorneys at Gervelis Law work with you through the entire settlement process to protect your best interest.
Call 866-792-2728 or reach out online today for your free legal consultation. Ofrecemos servicios en español.
