Small Settlements, Big Rewards: Practical Options for Clients with Smaller Proceeds
Structured settlements aren’t only for clients with millions of dollars in settlement proceeds. While a structured settlement may not be right for every case, injured claimants of almost any age, background, and settlement size can stand to benefit from this tax-advantaged solution.
Average Case Size for Structured Settlements
A common misconception exists that a settlement must be in the high five or six figures for a structured settlement to be a favorable option. In reality, Pacific Life reported an average case size of $166,000, Mutual of Omaha reported $135,650, and American General reported $176,9641. The minimum amount required to fund a structured settlement varies by life company, and most will structure as little as $10,000.
Benefits for Structuring Smaller Cases
Whether a claimant structures a $10,000 case or a $10,000,000 case, there are many attractive benefits, including:
- Preferential tax treatment: The money used to fund the annuity and any growth are 100% income tax-free for physical injury and wrongful death cases and 100% tax-deferred for non-physical injury cases.
- Guaranteed payments2: Rather than sticking the settlement proceeds in a bank account and counting on them to last, a structured settlement provides a stable source of income based on a schedule that the claimant helps create.
- Guaranteed rate of return: Counting on the stock market to provide your client with reliable returns is risky (not to mention, if the claimant places settlement proceeds in a traditional investment account, the growth may be taxable). A structured settlement provides a guaranteed rate of return, so your client knows exactly what to expect.
- No overhead fees or expenses: When combined with the guaranteed rate of return, the lack of overhead fees and expenses allows structured settlements to remain competitive with traditional investments—but with the added tax benefits.
- No contribution limits: Unlike traditional retirement plans such as 401(k)s and IRAs, structured settlements have no contribution limits nor taxation on distributions.
- Preservation of needs-based government benefits: When used in conjunction with a special needs trust, structured settlements can ensure the trust will remain appropriately funded while also protecting eligibility for needs-based government benefits like SSI and Medicaid.
- Preservation of college aid eligibility: Minors nearing college age who have received settlement proceeds may experience obstacles when applying for financial aid. A lump sum cash settlement could count against a student’s eligibility for aid, leaving the family scrambling to figure out a new plan. By placing funds in a structured settlement, the minor may have more options when it comes to financing his or her college education.
Contact the structured settlement experts today
Sage Settlement Consulting will work with you and your injured client to create a comprehensive settlement plan using industry-leading, tax-advantaged solutions. For more information, contact us today.
1 Reports provided to Sage Settlement Consulting (formerly The Settlement Alliance) in February 2018 for the 2017 calendar year.
2 Guarantees are subject to the claims-paying abilities of the issuing insurance company.