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5 Signs that a Structured Settlement is a Bad Idea

Updated on January 3, 2011

A structured settlement is a payment plan that you accept as an individual instead of accepting a lump sum payment. In most cases, the structured settlement is something that is awarded as the result of a lawsuit. An example of an exception would be if you won the lottery and choose a structured settlement plan instead of a lump sum payment for your award. Since most of us aren’t going to win the lottery, though, let’s assume that if you’re considering taking a structured settlement it is as the result of a lawsuit.

There are many terrific reasons to accept a structured settlement although of course the structured settlement does have pros and cons. You do have to be aware, however, that there are sometimes hidden reasons that the person offering the structured settlement to you wants you to take that option rather than a lump sum payment. It may be as simple as the fact that it’s easier for them to make payments than to come up with a lump sum of money. That’s fine. But it may also be because of other less innocuous reasons. That’s why it’s important for you to know what signs to look for that indicate a structured settlement might be a bad idea.

Here are five signs from ExpertLaw to keep an eye out for because they might mean that your structured settlement is a mistake:

1.     There is a high commission price attached to the structured settlement. Many times the structured settlement that you are getting will be coming from an insurance company. For example, you might get into a debilitating accident and sue and the insurance company of the person you’re suing is the one that’s issuing the settlement. In some cases, the insurance company may attach a very high commission rate to the structured settlement payment. That means that they receive a large percentage of each payment you’re supposed to get and the amount you receive monthly or quarterly is small. Make sure that you look at the rate of commission that will be taken in any structured settlement agreement before agreeing to the terms. It’s always best to have your own lawyer working on your behalf in regards to issues such as this.

2.     Your lawyer is in bed with the enemy. You have to make sure that the lawyer that you are working with in a structured settlement case is a legitimate, professional attorney who doesn’t have any interests at heart other than yours. Expert Law warns that there are several scenarios n which lawyers may be “self-dealing”. For example:

“there have been situations where the plaintiff's attorney has referred the client to a particular financial planner to set up a structured settlement, without disclosing that the financial planner will be paying the attorney a referral fee in relation to the client's account.”

3.     Only one insurance company is involved in the settlement. This is actually probably okay if you’re getting a small settlement. However, most structured settlements are for larger amounts and in this case it’s wise to consider using multiple insurance companies to complete the agreement. That’s because doing so will protect you in case something goes wrong with one of the insurance companies over time. In contrast to a lump sum payment, the structured settlement is paid out over a period of time, sometimes many years. In that time an insurance company may file for bankruptcy or face other problems that affect your settlement. There should be protections in place to protect you from this. However, it can be an additional asset to work with multiple insurance companies in order to reduce the likelihood that the total amount would ever be affected by a problem such as this.

4.     The amount they say that you’ll be getting each month seems too high. If something sounds “too good to be true” about your structured settlement agreement then there’s a good chance that it is. ExpertLaw says that there are some cases where the defense team will overstate the value of the structured settlement so that you agree to a certain price but then end up actually getting less than the amount that you agreed upon. If it sounds like the amount that you are to receive is higher than you expected, you should have your attorney look carefully at the agreement. Include a stipulation in the agreement that the full amount of the settlement will be paid in total regardless of the amount of each individual payment in the structured settlement.

5.     You know that you are unlikely to live as long as the structured settlement is designed to last. People who are suing someone because of an injury, accident or illness may have shortened life spans. Elderly people may not expect to live too many more years. If a structured settlement is being offered to you and you’re in this position then think carefully about the decision. If payments are supposed to come in for the next fifteen years but you only expect to live for five years then you should consider getting a lump sum payment instead. Alternatively, you can accept the structured settlement plan but make sure that there’s a legal plan in place for what happens to your payments if you pass away before the total amount is paid off (such as a plan for the money to go to your named beneficiaries). 


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  • profile image

    katherin 5 years ago

    I feel that a number of these things are happening with my lawyer.I am suing for my son who has a tbi med mal suit and my lawyer is making it seem like this is the only option. We settled for a 6-8 yr old life expectancy and they want me to make a 25-35 year account. I am an only parent and my child cannot even grasp little own take care of himself. Therefore I cannot work because I must stay home to take care of my son. If anyone else knows about how to deal with this please help.

  • Simone Smith profile image

    Simone Haruko Smith 7 years ago from San Francisco

    Fascinating stuff, this is! To be honest, I don't know if I've ever heard of structured settlements before, so I appreciate the guide :D

  • Hello, hello, profile image

    Hello, hello, 7 years ago from London, UK

    Thank you for an informative hub.