Advantages
A structured settlement offers numerous advantages over the traditional lump-sum payment:

The are free of Federal and state tax - Since Federal law was changed more than twenty years ago, structured settlement payments have been tax free. The payment offered in a lump sum is also free of tax, but the revenue generated from investing lump-sum proceeds is not. If you wish to avoid the tax complications associated with investing a lump sum payment, then accepting a structured settlement may be in your best interests.

They offer security - As any lottery winner can attest, people who suddenly come into a large sum of money will find their lives far more complicated than they were previously. Salesmen, con men, long-lost relatives and people simply looking for handouts will suddenly appear out of nowhere, just to see if they can get some money. A structured settlement can minimize these problems, as the cash flow is smaller. The payments remain steady, but there is no single large sum of money to attract the “money vultures” who would otherwise invade the life of the accident victim. In addition, the recipient of a structured settlement need not worry about stock market fluctuations, dishonest money managers or error-prone accountants. In short, structured settlements can make life much simpler for those whose lives are already too complicated.

They can save money - Settlements of this type can avoid costly and lengthy litigation, which can often drag on for years. Structured settlements are often negotiated out of court, which saves both parties and taxpayers money. The money saved on litigation represents more money to fund the accident victim’s needs.

They offer flexibility- The needs of each injured party will vary, and a structure can be negotiated to fit the victim’s individual needs. The payment period can be adjusted from a year or two to twenty or even a lifetime, if necessary. Should a specific need arise every three years, for instance, the payments can be adjusted to pay more every third year to accommodate that need.

Disadvantages
As with any financial arrangement, structured settlements offer a downside in addition to the positive aspects. While the positive probably outweighs the negative, accident victims need to be aware of both.

Annuity agreements may not be altered - Once a victim agrees to be paid via annuity, that agreement is fixed, and cannot be changed to a lump-sum payment. There are special tax considerations associated with these arrangements, and once the victim agrees to accept it, the deal is done. 

Payments over time do not yield interest - Unlike a lump-sum payment, which is invested by the victim to yield interest, the payments from annuity payments are the result of interest generated by an invested annuity on the part of the paying party. The payments to the victim are tax free, however, and any portion of the payments that are not used for needs or medical expenses may be invested. Those investments may yield interest if invested wisely.

Annuity payments may not be used as collateral for a loan - The laws that govern how structures work were specifically written in order to protect victims from financial abuse. If the victim were able to use the settlement payments as collateral, the payments could be placed at financial risk. The loss of the future payments could leave the victim without the finances necessary to meet their living expenses. Those with annuities are free, however, to declare their payments as income when applying for a loan.

As always, any injured party who is seeking accident compensation should discuss all related matters with a competent attorney.

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