Claims professionals, workers’ compensation managers and risk managers all know that structured settlements can save a lot of money when it comes time to settle a work comp claim. However, often employers do not fully comprehend or understand how structured settlements work. The following are some of the most frequently asked questions employers have about structured settlements.
Q. What is a structured settlement?
A. A structured settlement is an annuity purchased from a life insurance company that is tailored to meet the financial needs of the injured employee. The structured settlement makes periodic payments to the employee providing either a life-time income stream or income guaranteed for a set period of time.
Q. When should a structured settlement be used?
A. Any time the employee is going to be permanently and totally disabled, any time the employee is going to be partially disabled resulting in future lost income, any time there is going to be long term medical needs, or any time the total expected claim settlement value is $50,000 or higher.
Q. Can a structured settlement include future medical cost?
A. Yes. When there is an expectation of significant future medical cost, it is often preferable to have two annuities, an annuity for the injured employee’s future indemnity and a separate annuity for the future medical cost. Plus, if the employee’s is represented by an attorney, the attorney’s fee can be handled by an annuity as well.
Q. Does a structured settlement make the difficult to resolve claims any easier?
A. Difficult to resolve claims often center on a difference in opinion held by the employee/employee’s attorney and the claims professional of the value of the injury. A structured settlement will often bridge the financial gap between the employee’s attorney and the claims professional by allowing the claims professional to spend the amount of money the claim is worth and by allowing the employee to collect the amount of money the employee’s attorney evaluates the claim, but over a period of time.
Q. Can a structured settlement be tailored to provide money for known future expenses like a child’s college education, replacement of medical equipment like a handicap accessible van, or special needs of a dependent?
A. Yes. A structured settlement can be tailored to address the financial concerns the injured employee has about the future.
Q. Why not just pay the injured employee the amount that would be spent on the annuity?
A. Few people actually have the money management skills needed to manage a large sum of money and make it last a life time, especially when future medical care is needed. Studies have shown that the majority of people will have nothing left from a lump sum settlement five years after receiving it. A structured settlement protects the injured employee’s long-term financial viability.
Q. Are there any other benefits to the injured employee from accepting a structured settlement?
A. When an injured employee receives a lump sum settlement, the amount is federal income tax free, but any income from investing the money is taxable. The periodic payments of a structured settlement are tax free, providing the injured employee with a life-time income stream that is not subject to federal income tax.
Q. Once the employee has settled the claim through a structured settlement, can the employee change his mind or change the conditions of the settlement?
A. No, the employee cannot claim a change in medical condition, and seek to accelerate the periodic payments, or to defer the periodic payments or increase the periodic payments. The employer is no longer liable for any part of the claim resolved through a structured settlement.
Q. How does an employer, especially an employer who is not self-insured, benefit from a structured settlement?
A. A structured settlement lowers the overall cost of the claim, resulting in a lower experience modification factor and a lower insurance premium when the underwriter calculates future premium cost.
Q. Are there any other benefits to the employer other than lowering the cost of the claim?
A. Yes, a structured settlement removes the risk of litigating a serious injury claim through the state’s work comp system. Plus, the structured settlement relieves the employer of all future responsibility for the claim.
Q. What criteria should be considered in the selection of a structured settlement company?
A. The structured settlement company should use only highly rate life insurance companies for the annuities. The structured settlement company should have a full national scope to cover your locations wherever they are. The structured settlement company should have an established record of successfully completing structure settlements of workers’ compensation claims.
Q. Are structured settlements used to settle insurance claims other than workers’ compensation claims?
A. Yes. Structured settlements are frequently used in automobile injury claims, general liability injury claims, construction defect claims, employment law claims, pollution liability claims, etc. Just about any large legal settlement can be handled through a structured settlement.
Q. Where can I find more information about structured settlements?
A. Please visit our website for various articles about structured settlement. You are always welcome to contact us for additional information about structured settlements.
Author Michael B. Stack, CPA, Director of Operations, 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.
Editor Rebecca Shafer, JD, President of Amaxx Risk Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. She is the author of the #1 selling book on cost containment, Workers Compensation Management Program: Reduce Costs 20% to 50%. Contact:RShafer@ReduceYourWorkersComp.com.
Editor: Duke T. Wolpert, Director of Marketing, Ringler Associates is responsible for new business development across the carrier, TPA, and self-insured marketplace in the U.S. and Canada. Prior to joining Ringler Associates, Duke held leadership positions in the insurance, compliance and managed care industries. www.ringlerassociates.com. Contact: dtwolpert@ringlerassociates.com
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