Structured Settlement Agreement: The Advantages

A structured settlement agreement is made between two parties when they decide on getting a court case dismissed in return for a financial agreement being made by the defendant. The plaintiffs and the defendant decide on regular payments being made for a particular time period. A majority of injured parties go for such a structured settlement agreement because they can avail of a number of benefits. The most important advantage of a structured settlement agreement is that it holds a number of tax benefits.

As per the Internal Revenue Code Section 104 (a) (2), the amount that one receives for damages or due to injuries or physical sickness is not taxable even if one has a number of other sources of income available. Unlike dividends, royalties, salaries and other income forms, the payment that one receives from the structured settlement agreement is not taxable. The benefits of tax avoidance of a structured settlement agreement has made it extremely attractive for those who are not able to find another means to invest that would result in benefits that are tax free.

A number of parties go for the option of payments in lump sum instead of periodic ones in order to invest in other businesses in the future but they have to pay tax on any royalties or dividends they receive from such investments. Another reason why people opt for payments in lump sum over a structured settlement agreement is that they are not convinced that the payment that they are getting is sufficient to cover the needs of the family as well as medical expenses. It is for this reason that many people go for payments in lump sum. They sell these to another party for cash and take care of their medical and daily needs. While deciding on a structured settlement agreement, the plaintiff will have to consider a number of important aspects like deciding on the terms and conditions, the value of the payments to be made periodically, the risks involved and so on.

A structured settlement agreement should be carried out properly so that it can avail of the benefits of tax avoidance and future security. One will not come across another source of income that is not taxed like the annuity payments from a structured settlement agreement. This is a significant advantage that encourages the injured parties to receive payments periodically. Many people who receive such repayments take the decision of selling their settlement plan in case they do not have sufficient money in order to meet the needs of medical emergency or if they fixed the amount of the payment without taking into consideration their expenses properly. One has to keep in mind that once one has agreed to the terms of the structured settlement agreement, the terms cannot be altered. When it comes to tax benefits, a structured settlement agreement is the option that one must go for when one is expecting a payout.

A disadvantage of a structured settlement agreement is that usually, one's settlement payout is usually fixed. The amount is not adjusted as per inflation. This implies that over a period of time, the payments might not be enough in order to cover one's expenses as costs of living increase. Still, the number of advantages outweighs the disadvantages which is why a structured settlement agreement is a very popular type of insurance payout in America.