If you are resolving a personal injury claim in Ontario, you may have the option to receive your compensation as a structured settlement rather than a lump-sum payment. Understanding how structured settlements work and when they are beneficial can help you make an informed decision about your financial future.
What Is a Structured Settlement?
A structured settlement is a financial arrangement where part or all of your settlement funds are used to purchase an annuity from a life insurance company. Instead of receiving one large payment, you receive guaranteed, tax-free payments over time. These payments can be made monthly, annually, or in scheduled lump sums depending on your needs. Structured settlements are commonly used in cases involving serious or long-term injuries, where predictable income and financial stability are important.
Advantages of Structured Settlements
In Canada, payments received through a structured settlement are completely tax-free. This offers a significant advantage over investing a lump-sum settlement independently, where income or capital gains may be taxable. Structured settlements also provide steady and guaranteed payments for many years, which can be especially helpful for individuals with reduced earning capacity or ongoing care needs. The payment schedule can be tailored to your anticipated expenses, whether you require monthly income replacement, periodic funds for future care or equipment, or something else. Another advantage is stability: structured settlement payments do not fluctuate with market conditions. Once the annuity is purchased, the life insurance company is obligated to pay the amounts exactly as scheduled.
When Structured Settlements May Not Be Ideal
Structured settlements do have limitations. Once the structure is in place, it cannot be changed, cashed out, or borrowed against. This lack of flexibility can be a disadvantage if your financial needs or circumstances change unexpectedly.
When to Consider a Structured Settlement
A structured settlement may be worth considering if you have long-term or ongoing care needs or if you are unable to return to work and your future income is uncertain. It may be appropriate if you prefer guaranteed, steady financial support rather than managing a large lump-sum payment on your own. Structured settlements can also be helpful if you want to preserve eligibility for certain government benefits or if you are concerned about market volatility and would prefer a secure and predictable payment plan.
Work With a Lawyer Experienced in Structured Settlements
It is important to work with a lawyer who has experience with structured settlements so that this financial tool is considered early in the claim process. A lawyer familiar with structured settlements will collaborate with medical and financial experts to properly quantify long-term needs and will work with you and qualified brokers to design a structure that is secure and tailored to your goals.
Our firm has experience with structured settlements and ensures that this option is properly evaluated and incorporated into your overall settlement strategy whenever appropriate.
