The Advantages and Disadvantages Of Taking A Lump Sum Settlement
If you win a compensation case then you may be offered a choice when it comes to the settlement that is made to you. You may, for example, be offered a structured settlement which makes a series of regular payments to you over a period of time until your agreement is fulfilled. Or, you may be offered a lump sum payment as a one-off.
Obviously, your own personal preferences will come into play here but it is worth considering the advantages and disadvantages of opting for a lump sum settlement before you make any kind of decision. You do need to start thinking about your choices here early as some companies may try and settle with you before or during a court case before a ruling has been made.
One of the big advantages to taking a lump sum settlement over a structured settlement is the fact that you get your money in hand and are then done with the situation. You can then use your lump sum as you see fit. You can, with larger lump sums for example, simply invest them to provide you with a regular income.
Your own personal circumstances may play a part in the type of settlement that suits you in this kind of case as well. If, for example, you or a loved one was disabled by an accident then a lump sum payment could go towards buying the equipment and/or modifying your house to make your/their lives as comfortable as possible.
Alternatively, if you find that you can no longer carry on in the same career a lump sum payment of this kind could help you change jobs. You could even use it to set yourself up in business for yourself if you prefer.
You may, however, find that a lump sum settlement also comes with some disadvantages. It is, for example, easy to spend a lump sum quickly as you can feel like you have plenty of money at your disposal. You might be surprised at how little time it actually takes to fritter away a large sum of money.
In addition, lump sum payments may cost you more in tax terms than a series of structured settlements. It’s wise to take qualified tax advice before you come to a decision here to see how this might affect the actual money that you will have at your disposal. For example, although you may not be taxed on a lump sum payment in certain cases you may well be taxed on the interest that the lump sum earns so this is worth thinking about.
You basically need to think about your personal circumstances and preferences here before you choose between a lump sum or structured settlement payment. If possible, try also to seek out advice from a settlements specialist who can talk you through the upsides and downsides of each option and how they will actually impact on you. This should help you make the right decision to suit you both now and in the future.
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