Suffering an injury due to the negligence or recklessness of someone else can be a life-changing experience, especially if your injuries will make it difficult or impossible to provide for yourself and your loved ones. While you are recovering from an injury, the last thing you want to worry about is how you will support yourself financially. Fortunately, in Canada, those injured due to the negligent or reckless actions of others are entitled to damages, or financial compensation, for pain and suffering, lost income, costs of current and future medical care, and much more.
There are a variety of ways damages can be paid to a defendant in a personal injury lawsuit. Today we’ll review one of the most common – structured settlements.
What is a structured settlement?
A structured settlement is a method of paying or settling a claim for damages awarded in a civil lawsuit. At the conclusion of the lawsuit, the court will total the damage amounts from the various categories that were awarded, such as lost wages and future costs of care, and the total amount of money is usually ordered to be paid by the plaintiff all at once.
However, a court may also order a structured settlement. In these cases, rather than the plaintiff receiving a lump sum to cover the total of all damage amounts awarded, a court may order a structured settlement which will award the damages in a lawsuit to be paid on a periodic basis over a set length time, sometimes for life. As an aside, a court does not have to order a structured settlement; the parties involved in a lawsuit can agree to a structured settlement and avoid going to court.
The idea behind a structured settlement is simple; whereas a person who receives a windfall of cash may spend the money quickly, a structured settlement ensures that payments stretch over a longer period. We’ll talk more about the advantages of this system below.
How does a structured settlement work?
A structured settlement is a negotiated stream of payments to the individual who won the lawsuit. Most often, it comes in the form of a fixed annuity purchased from a life insurance company, using the awarded settlement funds.
If a structured settlement is awarded or agreed to in a personal injury lawsuit, the defendant, or their insurance company, will purchase an annuity valued for the number of damages that were awarded. The annuity purchased is non-commutable and non-transferable, meaning that nobody, including creditors, can change or stop the annuity for any reason. This can be beneficial in that it guarantees regular payment; however, it is important to remember that it is impossible to increase the monthly payment amounts once the settlement is agreed upon.
Structured settlements must be negotiated during the settlement process, and the defendant or their representative must purchase the annuity. In other words, the defendant cannot receive settlement funds and then purchase a structured settlement annuity on their own – all terms, including payment method, must be agreed to before the lawsuit is settled.
What are the types of structured settlements?
- Personal injury lawsuits are filed by individuals who were harmed by another person. In these cases, structured settlements are often used to fund medical expenses and costs of future care.
- Worker’s Compensation is awarded to individuals recovering from work-related injuries. Here a structured settlement will be used to replace lost wages.
- Medical Malpractice settlements are awarded when a doctor injures or even kills a patient due to their negligence or disregard for safety.
- Wrongful Death claims may be awarded structured settlements to ensure the deceased’s family receives a steady stream of tax-free payment to offset future expenses.
How is the structured settlement amount calculated?
Structured settlements can be negotiated in civil lawsuits just as the payment of a lump sum can be negotiated. Of course, the total value paid over the length of a structured settlement is based on the amount of damages that a plaintiff is awarded. So, with this in mind, let’s review the factors to consider when establishing a structured settlement.
First, the length of the structure and frequency of payments must be determined. When deciding how long and how often you would like to receive payments, consider the amount of money you will need or want to receive in each payment. This amount will vary from case to case and should consider ongoing medical expenses, lost wages, costs of future care, etc.
One should also consider adding larger payments at regular intervals or a lump sum payment at the end of a specified period. By scheduling cash windfalls throughout a structured settlement, one can plan for inevitable unexpected expenses, such as unrelated medical bills or home repair, that arise long after your case has been settled.
The recipient should also consider what will happen to the settlement in the event they die before the end of the payment structure.
Finally, structured settlement payments can be indexed at a fixed interest rate or linked to the Consumer Price Index, which will help to offset inflation.
When is a structured settlement right for you?
The creation of a structured settlement offers additional flexibility that is not found in lump-sum payments. Beyond the benefit of guaranteed payment at regular intervals, structured settlement payments can be designed to increase at specific points in time in anticipation of rising costs of care, for example. Additionally, a payment schedule can include a series of lump-sum payments to counter unexpected expenses, such as unrelated medical bills or home repairs, that arise long after your case has been settled.
Your structured settlement lawyer will work with the defendant’s lawyer, as well as a trained consultant, to flesh out the details of the settlement, including the size and frequency of the payments. Typically, structured settlements are paid on a monthly basis; however, it will be up to you and your lawyer to come to an agreement with the defendant in your case to ensure that your financial needs are met.
Contact an experienced personal injury lawyer today
If you or someone you love is injured due to someone else’s negligent, reckless, or careless behaviour, Chadi & Company is ready to advocate for you. Our team of Edmonton personal injury lawyers has experience in a wide variety of personal injury claims and can advise you regarding the validity of your claim. Let us fight to ensure you receive fair compensation for your injuries, while you focus on recovering. Call us at (780) 429-2300 or complete our online form today to schedule your free, confidential consultation.