Workers’ Comp Lump Sum Settlement vs. Structured Payments in Maryland
If you suffered an injury or have become ill at work, you might be eligible for workers’ compensation benefits. Depending on your situation, you could collect all of the money at once in a lump sum or in smaller installments over time as part of a structured settlement.
Both lump-sum payments and structured settlements have benefits and drawbacks that you should consider before you decide how you want to get paid. Here’s what you need to know.
Structured Settlements vs. Lump-Sum Payments
The majority of all workers’ compensation settlements end in lump-sum payments because they’re simpler. Your employer or their workers’ comp insurance provider pays you the full amount of the benefits you are owed in a single, lump-sum payment. When an employer or insurer pays you at once, they satisfy their obligation and settle your case.
However, some claimants prefer to receive their benefits over a more extended period in a series of structured payments. This arrangement is called a structured settlement.
When workers opt for a structured settlement, they typically receive a portion of money immediately as a smaller lump sum. Afterward, the remainder of the settlement money is paid out over several months or years. In rare cases, structured settlements may last for the rest of the recipient’s life.
When you and the insurance company agree on a structured settlement, you can negotiate the terms of the settlement in almost any way you prefer. For example, you can request terms that stipulate:
- How long the structured settlements last
- How frequently you receive settlement payments
- How much money you receive with each payment
- Whether you receive a lump-sum payment at the end
- Whether you would prefer to have your payments terminated or transferred to an heir if you pass away before the settlement is complete
Pros and Cons of Lump-Sum Payments
Lump-sum settlements are a common way to settle a workers’ comp claim, and they’re also the simplest. When you accept a lump-sum payment, the insurance company sends you a check, and the case is finished. Lump-sum payments are recommended for small or medium-sized settlements of $150,000 or less.
Lump-sum settlements have several advantages, including:
- You get the money now – When you have all the money upfront, you can spend it however you want and whenever you like.
- You can pay for immediate or unexpected costs – If you have outstanding debts or emergency expenses, you can cover them immediately with a lump-sum payment.
- You can invest the money as you like – If you plan to buy a car, finance a home, start a business, or invest in the stock market, you can do so right away with no restrictions.
However, lump-sum payments also have some distinct disadvantages, such as:
- You may require future medical treatment – If you accept a lump sum and need medical treatment in the future, you will not be able to seek additional compensation to cover those bills.
- You could qualify for Social Security Disability (SSD) – You could be eligible for SSD payments if your injury is long-term. These payments could be affected by a lump-sum workers’ compensation settlement.
- You risk losing the money or spending it too quickly – All too often, people who receive a larger amount of cash are tempted to spend it right away. And with a lump-sum payment, there’s nothing to stop you.
- You may feel obligated to give the money away – If friends or family members learn that you have access to a large amount of cash, you may get uncomfortable requests for money.
Pros and Cons of Structured Settlements
Structured settlements tend to be the best choice for larger payouts. Some unique advantages of structured settlements include:
- You get guaranteed payments over a long period – A reliable source of income in the future means you have ongoing support for future financial needs.
- You save money on your taxes – When you have less taxable income in your bank account, you don’t have to pay as much in taxes.
- You protect yourself from bad financial decisions – With a structured settlement, it’s impossible to spend all of the money at once, and you are less likely to lose a lot of it through poor investment decisions.
- You won’t feel as pressured to give the money away – If you only have so much cash on hand at any given time, your friends and family are less likely to badger you when they want something.
However, just like lump-sum payments, structured settlements also come with several possible disadvantages, including:
- You don’t have access to most of your settlement – The most obvious con of a structured settlement is that you don’t receive most of the money right away.
- You can’t make large purchases or cover unexpected expenses – When you only have a limited amount of money, you don’t have as much freedom to make big purchases or cover emergency expenses when they arise.
- You could lose the money if the company managing it fails – If the company responsible for paying out your structured settlement files for bankruptcy, the remainder of your money will likely expire along with it.
What Determines the Value of a Workers’ Compensation Settlement?
When the insurance adjuster investigates your case, they will consider the following factors to determine the value of your settlement:
- Your average weekly wage (AWW) before the injury
- The nature, type, and extent of your injuries
- When you reach maximum medical improvement (MMI)
- Whether your injuries left you permanently impaired
- Whether your injury is a “scheduled” impairment under Maryland law
- The extent of your impairment (if permanent)
- The cost of your past and future medical needs
- The impact of pre-existing conditions, if you have any
- The cost of your rehabilitation or vocational training
Talk to a Workers’ Comp Lawyer at Trollinger Law LLC Now
If you’re still uncertain whether a lump-sum payment or structured settlement is the right choice, reach out to a workers’ compensation lawyer at Trollinger Law LLC for personalized, one-on-one attention. We’ll support you through every stage of the workers’ compensation process and advise on what settlement options are best for you. Call or contact us today for a free initial case review.