A structured settlement is an arrangement where a damaged party receives periodic payments rather than a lump sum of cash. They became common in the 1970's because they provided the claimant and their family a long term financial safety net, and could be settled out of court. The federal government officially recognized structured settlement agreements in 1982, and because of some distinct advantages they have over lump sum awards, structured settlements are being used more and more as a method of compensation for damages.

One of the primary advantages structured settlements have over lump sum awards is freedom from federal and state taxes. A structured settlement also allows a claimant to remain eligible for any public assistance they currently receive, where a large cash award could cause a plaintiff to lose some government benefits.

A structured settlement can be preferable for a defendant in a lawsuit because the amount of the settlement can be significantly lower than a potential civil court judgment. Furthermore, an attorney will charge much less to negotiate a structured settlement agreement than to defend a client in a civil suit.

A structured settlement offers claimants several ways to receive their payments. Periodic payments can be distributed either monthly, bi-monthly, or with any other desired payment schedule. Part of the money can be paid up front, or for some future need like college tuition, medical bills, or retirement income.

Because structured settlements are so flexible, a claimant can arrange a payment plan that addresses both their immediate financial needs and their long term goals. Once the contract is final the terms are binding, so it is important to arrange the settlement to your satisfaction beforehand.

When setting up a structured settlement contract, remember to take inflation into account. Inflation can drain the long term value of the settlement, so it must be neutralized as much as possible. Insurance companies offer equity annuities that appreciate in value, minimizing the effect inflation will have on a settlement.

Before agreeing to a structured settlement, you should seek advice from an attorney knowledgeable of structured settlement law. The services of a certified financial planner could be useful as well. Settlements can exceed a million dollars, and sound financial planning is crucial to protect your long term financial security.

Choosing between a structured settlement and a lump sum payment is a decision with far-reaching consequences, and should not be taken lightly. Nevertheless, the whole matter can be boiled down to one simple question: which is more important to you - the safety and security of your finances, or your ability to control the money and how it is invested? When you have answered this question you should have a much easier decision to make.