Complex workers’ compensation cases require creative thinking. One tool that can help resolve these cases in an innovative manner is a structured settlement.
What is a Structured Settlement?
A structured settlement is a financial tool purchased through a structured settlement broker. When the structured settlement is purchased as part of a workers’ compensation settlement, the injured employee will receive periodic payments under an agreed schedule rather than a lump sum payment.
These periodic payments can come in various forms.
- Deferred Lump-sum Payments: Payments are made to the employee, which are larger than the regular periodic payments. This agreement is structured under a schedule consisting of pre-determined dates.
- Flexible Settlement Plan: Payments under this arrangement take into consideration the needs of the injured employee by addressing the cost of the structured settlement. A flexible settlement plan includes the planning necessary to achieve the goals of the injured employee while maintaining control of the cost of the structured settlement for the employer/insurer.
- Period Certain Annuity: In this type of structured settlement, the injured employee may elect to get larger payments by shortening the time period the annuity will be paid to age 65 or some other cut-off point.
Using a Structured in Your Settlement
Imagine you have a troublesome case with high exposure and the settlement negotiations between the plaintiff attorney and insurance company reach an impasse. The solution is a structured settlement.
The parties agree to a settlement amount of $500,000, which will be settled via a structured settlement. By working with a broker, the insurance carrier was able to purchase an annuity through a life insurance company. The broker was also able to secure a rated age for the injured party that further drove down the actual cost of the annuity due to co-morbid conditions of heart disease and diabetes. The final terms are as follows:
- Agreed upon settlement amount: $500,000
- Savings via rated age: $98,000
- Savings via annuity payments versus the lump sum: $126,000
- Total savings: $224,000
- Total payments to the Employee: $500,000
Everyone Wins with a Structured Settlement
How does the employee win? In this case, the employee receives the full value of the settlement. By receiving periodic payments, they will have better management of their settlement funds via guaranteed cash flow over their life expectancy. The settlement money also remains tax-free.
How does the employee’s attorney win? They were able to be a zealous advocate for their client while at the same time being creative. Not only do they have a satisfied client, but they also helped their client have financial stability.
How does the insurance carrier win? The carrier wins because they are able to free up funds that would otherwise be used for a settlement paying a lump sum. The claims management team can now concentrate on other troublesome files. They will also receive recognition for being efficient and creative by settling an annoying claim.
Author Michael Stack, Principal, COMPClub, Amaxx LLC. He is an expert in workers compensation cost containment systems and helps employers reduce their work comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and founder of COMPClub, an exclusive member training program on workers compensation cost containment best practices. Through these platforms he is in the trenches on a monthly basis working together with clients to implement and define best practices, which allows him to continuously be at the forefront of innovation and thought leadership in workers’ compensation cost containment. Contact: firstname.lastname@example.org.
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