Injured employees who do not have a financial background often do not understand the reasons for a structure settlement. Frequently, if the employee is not properly advised by his/her attorney, the employee will say “give me the money, and I will manage it”. However, once an injured employee learns the benefits of a structured settlement, they almost always opt for the structured settlement of both their indemnity and their medical claims. Structured settlement benefits include:
Steady Income:
A structured settlement normally provides periodic payments over a specific period of time or for the life expectancy of the injured employees. Injured employees, who are expecting a future pension and/or social security benefits, may opt for higher monthly periodic payments to their retirement age than for lower periodic payments for life.
Tailored Payments:
A structured settlement can be tailored to the future financial needs of the employee, whether it is a down payment on a home, a child’s college education, or any other future major expense.
Financial Security:
The injured employee does not have to worry about where his/her future income will come from. A structured settlement provides financial security by guaranteeing the employee the periodic payments.
Spousal Income:
A structured settlement can be based on the combined life expectancy of the injured employee and spouse, instead of just the injured employee’s life time. This is often done when the injured employee is concerned not only about his/her present needs but also about the spouse’s financial well-being after the employee’s death.
Tax-Free Income:
Federal income-tax law considers the periodic payments of a structured settlement to be payments for the injury. The periodic payments are tax-free of both federal and state income taxes. If the employee received a lump-sum payment in settlement of the injury, the lump-sum would be tax free, but all interest or dividend income earned on the lump-sum amount would be subject to federal income tax.
Cash:
A structured settlement can be tailored to provide the employee a lump sum at the time of settlement to cover any immediate financial needs like paying off debts or replacing the family car (but that also lowers the amount of each periodic payment).
Money Management:
Various studies have shown that approximately 80% of injured employees who receive a lump sum settlement will have squandered the entire amount of the lump sum within 5 years. A structured settlement protects the injured employee from mismanaging the money they will need over their life time.
Medical Cost Management:
In addition to the structure settlement of the indemnity portion of the workers’ compensation claim, a second structure settlement of the cost of the future medical care can be provided for the injured employee. A medical cost projection can be completed to establish the estimated cost of future medical care. A structured settlement of the medical cost with an independent administrator of the payments for medical services can relieve the injured employee of trying to manage the medical care cost.
When a structured settlement is properly explained to an injured employee, the employee will almost always chose the financial security and peace of mind that a structured settlement provides. For more information on structured settlements, or to talk to a structured settlement specialists, please contact us.
Author Michael B. Stack, CPA, Principal, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher. www.reduceyourworkerscomp.com. Contact: mstack@reduceyourworkerscomp.com.
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