How are settlements paid out

How Are Settlements Paid Out?

Plaintiffs who have suffered personal injuries flock to the courts to seek redressal for the damages sustained. Personal injury lawsuits hold the defendants liable and compel the party at fault to make good the losses suffered by the plaintiff. A successful case would either end up in an award of damages granted by the court or a settlement reached between the parties. In fact, almost 90% of all possible lawsuits get settled between the parties on the very stairs of the courtroom, i.e., even before they are filed. Litigations are undoubtedly cumbersome due to the very long periods they last for and for draining money out of the parties’ pockets. For this very reason, parties prefer settling their disputes out of court, even after a claim has been lodged before the courts.


The settlement of disputes out of courts can cure the defects entailing conventional litigations. Settlements are compromises by the parties, whereby the defending party offers to pay a certain amount to the plaintiffs, kickstarting a series of negotiations between them. Once it is realized that a conclusion may soon be reached, the parties shall mention the terms of this compromise before the court. The courts have been showing an inclination towards out-of-court settlement and have preferred this choice by the parties.

Once the parties have assented to the final terms and conditions upon which a settlement is to be governed, the next step is to chart out the procedure to pay out the amounts. The choice of which mode to prefer in paying out settlement money is of both the parties since both will be impacted by it. This is since settlement amounts are often substantial, making it difficult for the payer to arrange vast quantities as a lump sum. Also, since the plaintiff, i.e., the payee, has to chart out his plans to utilize these monies, he needs to arrange them accordingly.

How are settlement awards typically paid out?

A personal injury’s settlement amounts can be paid out as a single lump sum amount or through a structured settlement. Structured settlements involve periodic payments in the form of installments, the quantum of which can be agreed upon by the parties mutually as per their feasibility. While deciding upon the option of receiving compensation either as a lump sum amount or a structured settlement, the pros and cons of both must be assessed relatively.

Lump-sum payout

Obtaining a lump sum payout means that the Plaintiffs receive their entire settlement amount altogether. 


This comes with the advantage that the entire amount is available in liquid. The recipient is at liberty to invest it wherever they wish. Moreover, where the plaintiff has to use a significant portion of his settlement payout for medical or other urgent bills, obtaining an instant lump-sum payout would be the wisest approach. Essential expenses cannot be delayed much. If the very purpose of securing a settlement is to meet such, not even a minor delay can be afforded.


However, it must be remembered that a lump-sum payment is easy to be abused. Many plaintiffs, not appreciating the worth of the fortunes they receive, squander their newly-acquired wealth on luxury and lavish expenses. Some may purchase the dream car they had always wanted or may even go to sponsor an extravagant vacation trip abroad. It should hence be remembered that huge cash is hotcakes and will shift hands very quickly. For people with low or no check and control on their expenses, obtaining lump-sum amounts can be destructive.

Structured settlements

Through structured settlements, plaintiffs are granted their payouts in the form of installments. This means that the lump sum amount is not available at the disposal of the recipient at once. Hence the choice of investing or saving it must be made wisely.


The advantages of structured settlements can be maximumly reaped through good professional advice from an investment broker. Structured settlements mean that the plaintiff creates a long-term cash inflow for them, which can be put to correct use to generate more. These can either be utilized through investments in annuities that ensure disbursement of ample amounts periodically to meet your needs permanently.

A continuous inflow of money can even be put into skill acquisition, which is undoubtedly an investment with permanent benefits. Other uses can be made of structured payments depending on whether the installments will be received for a certain period or the inflow is permanent.


Receiving it in small chunks, the real value of a settlement package may diminish since small payments are not of much use. For the reason that the plaintiffs may not be able to invest these into a large, lucrative fund or plan, structured settlements may not be beneficial for all and depend on individual circumstances.


The application of taxes depends on the purpose of the compensation being received. For example, monies received on account of the loss of income are entirely taxable. Also, the correct usage of settlement monies will determine whether taxes are payable or not since investments made from settlement monies will be taxed at the usual rates.

Factors to consider while deciding upon the form of a payout

No matter what options the defendant side opens for you to choose, you being a plaintiff, must consider your personal circumstances to make an informed decision. It will be wise to have know-how on the tax regimes and the liability you may incur by obtaining large sums. Also, any current debts may also be taken into account to make sure that the creditors do not strip you of all the amounts received. The plaintiff’s financial management skills hold great importance too in determining whether the received amounts may last to procure benefits. As discussed previously, a plaintiff’s spending habits matter a lot when it comes to how he must receive its settlement amounts. Proper check-and-balance of the inflow and outflows of money is essential to ensure that settlement amounts are not squandered over unnecessary expenses.

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* This post is for educational and informational purposes only. Please consult your attorney and your financial and tax advisors before making any decisions. Terms and conditions can be found at

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