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Structured Settlement Pros and Cons

Structured settlements have grown in popularity because of their many benefits. However, there are some negatives associated with choosing a structured settlement over a lump-sum deal. Consult with your attorney prior to choosing a structured settlement.

Pros can include:

1. Structured settlements are a guaranteed flow of income through the agreement term, commonly spanning years.


2. Structured settlements are tax-free.


3.Payments cannot be affected by the changes in the stock market.


4. Payments are a valuable asset that can be valued and sold in a competitive marketplace.


5. In the event a recipient dies, structured settlement payments can be deferred to a beneficiary.


6. Structured settlements are often a welcomed compromise in a lawsuit, with advantages to both the plaintiff and the defendant. Those who don’t want to pursue long-term litigation may prefer a structured settlement.

Cons can include:

1. Although personal injury settlements aren’t taxable, other parts of a plaintiff’s award — such as punitive damages and recovered attorney’s fees — can be taxed.


2. Structured settlement payments are not flexible once established. If your circumstances change and you need a larger monthly payment or a lump sum for an emergency, you cannot access the funds without selling payments.


3. A judge must approve all sales. If the judge doesn’t approve your reasoning, you can’t sell it.


4. If you withdraw from your structured settlement early or incorrectly, surrender fees and IRS penalties may apply.


5. Luckily, some of the cons can be mitigated if the annuity holder sells part of or all of their future payments. Structured settlement annuity buyers can provide sellers with an immediate lump sum of cash in exchange for some or all of their future payments and a fee.

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