Lump Sum Payment Vs. Structured Payment. Which is Better for You?

Workplace accidents are common, especially if it's a construction site. However, if you are a worker, who suffered an injury while working at a constr

Workplace accidents are common, especially if it’s a construction site. However, if you are a worker, who suffered an injury while working at a construction site, you can claim worker’s compensation from the company. With the help of this compensation, you will be able to deal with the financial consequences, such as medical bills and daily household expenses, until you recover. However, when it comes to financial compensation, you will have two options as a claimant: either settle for a lump sum payment or claim for structured payment. You must understand that each state has its laws when it comes to workplace compensation, with many having much better laws. Therefore, you must see if you are a resident of a state that offers better laws, such as Maryland, so your lawyer can help you accordingly. Maryland worker’s compensation lawyers will help you know what kind of compensation will suit you more. If you don’t know what lump sum payment is and structured payment and are also unaware of the benefits of each one, then continue reading, as both have been discussed below in detail. 

What is a Lump Sum Payment?

A lump sum payment can be defined as a one-time payment in cash that the claimant receives in settlement. It can be beneficial for the claimant as he will receive a massive amount at once, which he can use for paying his medical bills, cope up with the financial stress, running the household expenditures, making an investment, and buying any asset that is going to help him generate income such as a vehicle or shop in future. A lot can be done when you have enough cash in hand rather than receiving a little amount of money or a series of small payments every month. Not only this but receiving a lump sum payment saves a lot of your time and energy, too, because the payment has to be made at once, which means that after the complaint receives the whole payment, there won’t be the need to attend a meeting with the opposite party every month and go through the legal processes for ensuring the delivery of payment and so on. However, on the other hand, it has been observed that the lump sum payment has a comparatively lower value because the total payment has to be paid upfront. Another disadvantage of lump sum payment is that when a person receives a lump sum payment in cash, it becomes taxable when you get your hands on it. Yes, you will have to pay the taxes against the amount you received, which sometimes goes up to 20% of the total payment. Also, suppose your doctors believe your injury will have some long-term effects, and you will need medical treatment repeatedly. In that case, the lump sum payment might not be able to cater to your future medical needs because once you receive a lump sum payment, you won’t be entitled anymore to claim more payment for covering the medical expenses. Lastly, a lump sum payment will impact the amount of money you will receive as a pension once you retire. There is a high possibility that you will receive less than the actual pension amount paid to other employees. 

What is Structured Payment?

Structured payment allows you to receive a fixed amount for a certain period until and unless you receive all the compensation amounts. Simply put, you will receive your compensation amount in installments every month or every week. The first payment you will receive right after the settlement from the insurer will be a large fragment of the total amount. After that, the remaining amount will be paid off in small chunks for several years, as decided by both the complaint and the insurer. Though most people prefer lump sum payment over structured payment, if the compensation amount is more than $150,000, a structured payment would be a better idea for the following reasons. The first reason is that if you agree to receive the amount equal to or more than $150,000 all at once, you will have to pay taxes against this amount which could be equal to 20% of the total amount. However, there is a possibility that workers’ compensation might not be taxable in some countries or states. However, even if it isn’t still, you will lose a significant amount of the money in the form of bank interest and dividends.

On the other hand, if you agree to receive this amount as a structured payment, you won’t be eligible to pay heavy taxes at all. Another reason to opt for structured payment is that receiving all of the money at once can make you spend it all very quickly, and there is a possibility that you won’t be able to save any amount for future medical treatments.

However, just like the lump sum payment, structured payment also has some disadvantages. The first disadvantage is that the insurer might default at any time, the risk is always there, and once it happens, you won’t be able to receive the remaining amount until and unless you file a default case which will again cost you a lot of your time, energy and money as well. Another reason why a structured payment might not be suitable for you is that you won’t be able to pay off your debts and loans, make an investment or start a new business at once because you will receive a very minimal amount each month which would hardly help you to manage the day-to-day household expenses and cover the cost of your medical expenses. 

Without adequate knowledge, it is hard to decide between structured payment and lump sum payment.  A wrong decision will cost you more than the actual damages itself. So, it is best to hire an experienced worker’s compensation attorney to advise you on the type of payment you should choose. They can also help to increase the compensation amount you receive. 

So, these are the pros and cons of both types of payments. Ideally, if the compensation amount is less than $150,000, you must go for a lump sum payment as you won’t be eligible to pay heavy taxes and will receive all the amount at once. On the other hand, if the amount is more than $150,000, then structured payment will suit you more, but ensure that the insurer is reliable and will not default in your case. As mentioned earlier, you must hire an experienced and reliable lawyer who will give you a better suggestion after analysing your case.