A structured settlement in a workers’ compensation case allows for periodic installment payments, rather than a single lump sum payment of the entire award. If your injuries are significant or if you have a disability with long-term care needs, a structured settlement may be right for you.
Our experienced Wilmington workers compensation lawyers at Horton & Mendez, Injury & Car Accident Attorneys, explain the differences between structured settlements and lump sums in workers’ compensation cases.
What Is a Structured Settlement?
A structured settlement is a payment of compensation over time. Rather than paying the entire award at once, the payee receives their compensation in installments. The term “structured settlement” originates from the periodic nature or structure of the award, which is made over multiple payments.
What Is a Lump Sum Settlement?
A lump sum payment is the resolution of a legal claim with the payment of the entire amount at once. There is only one payment that fully resolves the liability of the defense. There may be conditions for management of the award, but the defendant’s liability is resolved through a single payment.
Note: In North Carolina, the Commission allows for payment of a lump sum to a trustee. The trustee can administer the award for the benefit of the entitled person (§ 97-46).
Pros and Cons of Each Settlement Type
Depending on your circumstances, a lump sum payment or a structured settlement may be right for you. There are pros and cons to each type of workers’ compensation settlement.
Comparing Lump Sum and Structured Settlements
| Lump Sum | Structured Settlement | |
| Access to Funds | The recipient can access all the funds immediately. This can be helpful for home modifications and up-front medical expenses. | The recipient does not have access to the funds. They must wait for the next installment payment, even if they have unique needs. |
| Protection of Funds | Funds are not protected for the future. If the victim has long-term disability, care needs, or income loss, there is no guarantee that funds will be available in the future. | Funds are protected and available for the victim’s future needs. The victim has assurances that payments will continue for the specified period. |
| Investing | The recipient can make investing decisions that may yield a higher amount than could be gained through installment payments. | The recipient is protected from unfavorable investments that may diminish overall payment amounts. |
| Tax implications | Investment gains are likely subject to tax. | Payments are generally tax-free, including any gains or increases. |
| Changes in circumstances | The recipient can change their spending, adjusting it up or down, for specific circumstances that arise. | The payment amount is fixed, regardless of changes in circumstances. |
| Outside influence | The recipient may be subject to outside influence and pressure on how to spend the money. | Because access to funds is periodic, funds are insulated from undue pressure from third parties. |
When Is a Structured Settlement a Better Option?
A structured settlement may be the better option when the person has long-term disability or long-term care needs. The structured settlement can protect the person from mismanagement of the funds or poor investment choices. A structured settlement can ensure that funds are not spent too quickly, providing living expenses and future medical care.
A lump sum may be a better option when future needs vary. If the recipient is confident in their ability to manage the funds, flexibility may allow them to meet large, unexpected expenses.
Sometimes, the lump sum is the better option, while in other cases, the structured settlement is better. It depends on the person’s injuries, future needs, and personal preferences.
Tax Implications and Financial Planning Considerations
Workers’ compensation settlements are not taxed in North Carolina. The payment is not considered wages or income for the purposes of taxation. There are a few important exceptions, such as dual workers’ compensation and Social Security Disability Benefits (SSDI) payments exceeding a threshold and amounts previously deducted as medical expenses.
If you receive a lump sum award and then invest the funds, the earnings are likely subject to tax. Initially, the funds may be tax-free, but as you invest, you may receive an unexpected tax bill. With a structured settlement, the funds you receive will continue to be tax-free.
How To Decide Which Settlement Option Is Right for You
To decide whether to select a lump sum vs. structured settlement, ask yourself these questions.
- How significant are my injuries?
- Am I likely to have long-term medical bills?
- Am I likely to have long-term personal care needs?
- Do I want to manage the funds myself?
- How much risk am I willing to take? Do I want assurance that I will always get my next payment?
- Are my needs likely to vary in the future?
- Would a steady income stream benefit me?
An experienced workers’ compensation attorney can help you determine which settlement option is right for you.
North Carolina Workers’ Comp Structured Settlements
The NC Workers’ Compensation Act, North Carolina General Statutes Chapter 97, applies to workers’ compensation claims and allows for installment payments.
If the parties agree to resolve their case by settlement, they must file a copy of the agreement with the Commission for approval. The Commission must find that the settlement is fair and just.
The settlement must contain a statement that the settlement is reasonable for the payment of medical expenses.
North Carolina’s Structured Settlement Protection Act applies to periodic payments of damages for personal injury in the resolution of a tort claim. The law specifically says that structured settlement transfers arising from Chapter 97 payment rights (workers’ compensation) are not allowed.
Contact an Experienced Wilmington Workers’ Compensation Lawyer
Receiving the compensation you deserve for a workplace injury means receiving your settlement in the way that’s best for you. It’s important to understand structured settlement vs. lump sum. Horton & Mendez, Injury & Car Accident Attorneys, can build your case. We resolve cases through lump sums and structured settlements. Contact us to talk to a lawyer and get help today.
