Lump Sum Settlements vs. Structured Workers’ Comp Payments: Understanding 
Your Options

Do You Get More Money With a Structured Settlement?

Not necessarily. Whether you get more money with a structured workers’ comp settlement depends on several factors, including:

• Negotiation. The total value of the settlement is primarily determined by negotiation with the insurance company. A skilled attorney can often negotiate a higher settlement amount, regardless of whether it’s structured or lump sum.
• Investment returns. A lump-sum settlement gives you the opportunity to invest the money and potentially earn a higher return than the guaranteed rate of a structured settlement. However, it also comes with the risk of losses if investments don’t perform well.
• Time value of money. Money received today is generally worth more than the same amount received in the future due to inflation and potential investment returns. A lump sum gives you immediate access to the full settlement amount, allowing you to potentially earn more through investments.

Ultimately, whether a structured or lump-sum settlement will result in more money for you depends on your individual circumstances, financial goals, and risk tolerance. It’s essential to consult with a financial advisor and an attorney experienced in workers’ compensation to evaluate your options and determine which settlement structure is best for your specific situation.

What Is the Downside of Structured Settlements?

While structured settlements offer security and long-term income, they also come with potential downsides, which we’ll outline below:

• Dependence on payment schedule. With structured settlements, you’re tied to a set payment schedule, which may not align perfectly with your changing preferences or financial needs, especially in an emergency.
• Lower potential returns. The guaranteed rate of return on a structured settlement is generally lower than what you could potentially earn by investing a lump sum.
• Inflation impact. Over time, inflation can erode the value of periodic payments, reducing their purchasing power.
• Complexity and fees. Setting up and managing a structured settlement can be more complex and may involve additional administrative fees.

It’s crucial to weigh these downsides against the potential benefits of a structured settlement to determine if it’s the right choice for your individual financial needs and goals.

How Long Does a Structured Settlement Last?

The duration of a structured workers’ compensation settlement is flexible and can be tailored to the individual’s needs.

It can range from a fixed period of several years to payments that last a lifetime. Some settlements might even include a combination of an upfront lump-sum payment followed by ongoing periodic payments.

The specific length is typically determined by factors like the severity of the injury, the age and life expectancy of the injured worker, and their current and future financial needs.

How an Impairment Rating Affects Your Workers’ Comp Claim in SC

Learn how impairment ratings are determined and how they impact your workers’ comp benefits after a work-related injury or illness.

Learn more

Is a Structured Settlement Taxable Income in a Workers’ Comp Claim?

No, a structured settlement for workers’ compensation is generally not considered taxable income. The periodic payments received as part of the settlement are typically tax-free, including any interest that accrues over time. 

This tax advantage can make structured settlements an attractive option for ensuring long-term financial stability without the burden of additional taxes.

Do You Have to Pay Taxes on a Lump Sum Settlement From Workers’ Comp?

No, you generally do not have to pay taxes on a lump sum settlement from workers’ compensation. The lump sum payment, like periodic payments in a structured settlement, is typically tax-free. This tax exemption makes workers’ compensation settlements financially advantageous for injured workers.

Is It Better to Take a Lump Sum or Structured Settlement?

Choosing the best settlement option depends on the specifics of your case, particularly whether you expect to need ongoing medical treatment. Ultimately, you’re the best judge of whether you have the financial discipline to manage a lump sum effectively or if a structured settlement’s steady income stream would better suit your financial needs and goals. 

Consulting with an experienced workers’ compensation attorney can help you understand your options and make the best decision for your individual situation.

If you’ve been involved in a work-related accident in Columbia, South Carolina, the experienced team at Smith, Born, Leventis, Taylor & Vega can provide invaluable guidance, advocate and negotiate on your behalf, and help you navigate the complexities of your workers’ compensation claim. Our dedicated Columbia workers’ compensation attorneys are committed to fighting for your rights and securing the best possible outcome for your case.

Contact Smith, Born, Leventis, Taylor & Vega today to schedule a free consultation to discuss your legal options and take the first step toward obtaining the compensation you need to secure your future.