According to Annuity.org, courts pay out personal injury settlements in one of two ways: Via a lump sum and through structured settlements. Both come with their benefits and drawbacks, which is why it is important that plaintiffs understand the differences between the two.
Not only should injured parties understand the differences between a lump sum personal injury award and structured settlements but also, they should consider how each type of payment will impact their financial goals. More importantly and regardless of which option a person chooses, he or she should talk with a financial advisor about smart ways to use the cash. FinanceMonthly provides a few tips to consider.
Plan for taxes
When financial planning for a personal injury settlement, most injured parties fail to take taxes into consideration. All the money a person earns, whether through work, sales, alimony or court judgements, is subject to taxes. A financial planner can help a person estimate the annual taxes he or she may owe, as well as explore ways to minimize a tax burden.
Pay down debt
If a person comes into a large sum of money such as that offered by a personal injury award, he or she should take it and pay down as much debt as possible. Even if that person is no longer able to earn an income, he or she can rest easy knowing that he or she is truly financially free.
Go back to school
In many personal injury cases, the courts will award damages for either loss of earning capacity or rehabilitation. Individuals should use those damages to increase their earning potentials in new yet lucrative fields.
Make wise investments
With large lump sums of cash, individuals have ample opportunity to create passive income streams for themselves that many other people do not have. Be it stocks, real estate or someone else’s business, recipients of personal injury awards should look for ways to keep themselves liquid for years into the future.
Make a plan
Whether injured individuals choose to use all or none of these tips, the best thing they can do is make a financial plan and stick with it. A financial planner can help a person identify his or her goals for the future and ways to allocate the money to best achieve them.
