A “settlement” refers to collecting damages from a personal injury claim without going to court.
There are two types of settlements: “lump sum” and “structured”.
- In a Lump sum settlement, the plaintiff (injured person) receives the entire amount upfront in one big payment.
- In a Structured settlement, the plaintiff receives some money up-front (to pay for things like medical bills, lost wages, special equipment and usualout-of-pocket expenses), and the remainder of the money is paid out in periodic payments (for example, every month) for a fixed term, which can range from a few years to a lifetime.
Structured settlements are increasingly popular among insurance companies, plaintiffs and defendants. About half of all the significant cases in Canada are settled this way.
Structured settlements have four advantages over lump sum payments:
- All of the money is tax free.
- You have great flexibility in the terms.
- It is essentially judgment proof.
- The money is protected.
A structured settlement is basically a guaranteed tax-free annuity or pension.
As claimant, you choose the period of time over which the money is paid, to meet your particular needs. The possibilities are almost unlimited. For example, payments can be indexed to protect you from inflation, or designed to provide tax-free lump-sum payments within the annuity (to replace equipment such as wheelchairs, customized vehicles, etc.) Payments can be designed to increase at specific points in time, such as when you need surgery or large medical bills are expected later in your life.
The structure of the settlement must be negotiated during the settlement process and is in the agreement document. Structured settlements cannot be changed by anyone after they are signed and the case closed. You can’t take advantage of future investment opportunities or unexpected purchases by “cashing out”.
Also, the interest rates in a structured settlement are fixed at the time of settlement. If better rates of return become available at some time in the future, you as claimant cannot benefit. But if interest rates fall, you are protected.
So the disadvantage of a structured settlement is that it cannot be changed or cashed in once it is in place.
The payment schedule can used as “proof of income” when applying for a loan, but the payments themselves cannot be pledged, assigned, garnisheed or redirected to a lender.
You should always consult a lawyer for legal advice about structured settlements.
About Nudorra Capital:
Nudorra Capital is a litigation and pre-settlement loan company. During litigation, clients may find themselves facing financial difficulties. At Nudorra Capital, we recognize the sensitivity of the situation and provide loans professionally, timely (usually within a 24 to 48 hour period) and at the most competitive rates in the industry.
Our loans do not require interim payments and are only paid back when the case is settled.
We believe as a company, that your client’s priorities should go towards healing themselves first, not worrying about whom to pay. To find out more about how we can help, please call us at (416) 342-9590 or email our President Jeffrey Gottheil at jgottheil@nudorra.com
