What Is a Structured Settlement?

Getting a settlement from a personal injury or wrongful death lawsuit can lift a huge weight off your shoulders, but figuring out how you’re going to take the money is a question one must ask. Should you take one big payment or smaller amounts over time? These choices impact your future in ways you may not know. 

At West Coast Trial Lawyers, we’ve walked with many clients through this tough choice, helping them find peace of mind after life-changing moments. This guide breaks down what structured settlements are, how they work, their upsides and downsides, and what you need to think about to make the right call. Plus, we’re sharing some practical advice you won’t find just anywhere to help you get the most out of your settlement.

Defining a Structured Settlement

A structured settlement is when you get your lawsuit or insurance money in smaller, regular payments over time, not one giant check all at once. Think of it as a payment plan for your future and current needs. You’ll often see this in cases like car accidents, wrongful death, or workplace injuries, where the money comes from an annuity bought through a life insurance company. Your lawyer, you, and the other side sit down to figure out how much you’ll get, how often, and for how long, making sure it works for you.

It’s built to give you peace of mind, helping you stretch a big settlement so you don’t burn through it or get tripped up by bad financial choices.

Why Should I Choose a Structured Settlement?

Structured settlements are a go-to choice for many because they bring stability, especially when you’re dealing with big damages from your case.

 Here’s why they’re so valuable:

• Reliable Income: You get regular payments to handle everyday costs, medical bills, or whatever lies ahead, you know that money will be there every month.
• Tax Breaks: The IRS does not tax structured settlements, for most cases. 
• Smart Money Management: Getting paid little by little helps you avoid the urge to splurge, keeping your funds safe for the long run.

What you might not know is that your structured settlement can be customized to include a mix of payment types (e.g., monthly payments plus occasional lump sums for big expenses)

How Do Structured Settlements Work?

Getting a structured settlement set up is a straightforward process, it’s custom built for your life.

Working Out the Deal

 You and your attorney sit down with the other side (or their insurance company) to figure out the settlement amount and how you’ll get paid. Maybe you want steady monthly checks, a big yearly payment, or extra cash for things like medical bills or a new place to live.

Buying the Annuity

The other side uses their insurance company to buy an annuity from a solid life insurance provider to cover your payments. In California, the court makes sure the insurer is trustworthy, so your money’s safe.

Getting Your Money

Once everything’s set, the insurance company sends you payments on the schedule you agreed on—maybe monthly, yearly, or whatever works best.

A Tip from West Coast Trial Lawyers: California’s Structured Settlement Protection Act California Code, Insurance Code – INS § 10134 is strict—it requires court approval if you ever want to sell or cash out your payments early. This keeps shady buyers from taking advantage of you, but you’ll need a lawyer’s help to navigate it if you want access to funds sooner.

Types of Structured Settlement Payments

We’ve seen clients choose options that give them peace of mind and financial stability after a tough injury case. For some, lifetime payments are the way to go, delivering steady income for as long as they live, perfect for folks who want the security of knowing they’re covered no matter what. 

Some clients prefer fixed-term payments, which run for a set period, like 10, 20 or 30 years and can even pass on to loved ones or a selected beneficiary if something happens to you. Then there are lump-sum add-ons, which are a big help for expenses like clearing medical bills or buying a new wheelchair-accessible van. And for those worried about inflation, you can set up escalating payments that grow over time with inflation.

Benefits of Structured Settlements

Structured settlements offer some advantages over lump sums, especially for personal injury or wrongful death cases:

• Steady Income: Regular payments help you budget smartly and avoid financial missteps.
• Tax-Free Payments: Settlements for physical injuries or wrongful death are generally tax-free.
• Customizable Terms: You can tailor payments to match your financial goals, such as covering ongoing medical care or mortgage payments.
• Market Protection: Annuities are backed by highly rated insurance companies so your funds are safe from stock market volatility.

Cons of Structured Settlements

While structured settlements are beneficial, they have limitations too

• Limited Cash: You can’t easily access large sums of cash for unexpected emergencies unless you sell your payments, which requires court approval.
• Fixed Terms: Once set, the payment schedule is difficult to change without legal processes.
• Insurer Risk: Payments depend on the financial health of the insurance company. Choosing a top-rated insurer, like we mentioned above, minimizes this risk.

A Tip from West Coast Trial Lawyers:  Many people don’t know about structured settlement brokers—specialists who help design payment plans during negotiations. A good broker, working alongside your attorney, can customize a settlement that balances your immediate needs with long-term security

Can You Sell Your Structured Settlement Payments?

If your financial needs change, you may consider selling some or all of your structured settlement payments for a lump sum. However, this process is heavily regulated in California:

Structured Settlement Court Approval

 Under California’s Structured Settlement Protection Act, a judge must approve the sale, ensuring it’s in your best interest and that you receive fair market value.

Risks of Selling

Selling reduces your long-term financial stability, often involves steep fees, and may result in a lower payout than the total future value of your payments. Tax benefits may also be lost for sold portions.

Before selling, consult an attorney to explore alternatives, like adjusting your budget or seeking a loan, to avoid sacrificing future security.

Structured Settlements and Estate Planning

Structured settlements can play a key role in your estate plan:

• Beneficiary Clauses: You can designate heirs to receive payments if you pass away, ensuring your loved ones are supported.
• Trust Integration: Payments can be directed into a trust, protecting funds from creditors or mismanagement by heirs and allowing for customized distribution plans.

A Tip from West Coast Trial Lawyers: Setting up a trust for structured settlement payments can be a game-changer for protecting your family’s future, but it requires careful planning. 

Tax Considerations 

While payments for physical injuries or wrongful death are tax-free, other types of settlements may not. 

• Non-Physical Injury Awards: Settlements for emotional distress (without physical injury), punitive damages, or employment disputes are often taxable.
• Interest Income: If your settlement generates interest (e.g., through annuity investments), that portion may be taxable.

Consult a tax professional alongside your attorney to understand the full tax implications of your settlement.

Choose What’s Right for You

At the end of the day, it’s up to you and your circumstance:

• Consider a Structured Settlement If: You want predictable income and don’t trust your money management skills. Especially if you have ongoing medical or living expenses
• Consider a Lump Sum If: You have immediate large expenses (e.g., paying off debt or buying a home) and are confident in your financial management skills.

Discuss both options with your attorney to weigh short-term needs against long-term security.

West Coast Trial Lawyers is Here for You

At West Coast Trial Lawyers, we’ve helped thousands of clients secure fair settlements in personal injury and wrongful death cases. Our attorneys, with over 20 years of combined experience, work closely with financial experts to structure settlements that protect your future. We negotiate terms that prioritize your needs. 

If you have been injured by someone else’s negligence or deliberate acts of malice call our law firm today (213) 927-3700 for a free consultation or fill out our online contact form.