How are personal injury settlements paid out?

Plaintiffs, the injured person, in a personal injury action has different options for how their settlement or award is paid to them. The method of disbursement can depend on your preference, the age and cognitive function of the injured person, and the amount of the settlement.
how are personal injury settlements paid out

How a settlement or award is reached

Many personal injury cases are settled in mediation with the assistance of a mediator, and others are settled outside of court through back-and-forth negotiations between counsel. If the case goes to trial, the judge or jury will decide the amount of damages the plaintiff receives.

As part of the settlement or post-verdict instructions or agreements, the parties will agree on the terms of the payout. Generally, personal injury settlements are paid in either a lump sum or through a structured settlement.

Lump sum payments

With a lump sum payment, the plaintiff is able to receive the entire amount of their settlement all at once. Plaintiffs may choose to receive the lump sum for reasons that are unique to their situation.

For example, if the award isn’t very large it often makes sense to have it paid out one time. Some plaintiffs might prefer the lump sum if they have significant expenses associated with their claim that cannot wait to be paid such as medical bills for treatment they received through a Letter of Protection – a lien on their settlement.

Structured settlement

A structured settlement is paid in installments over time. These may be a better option for plaintiffs who plan to use the award for lifelong care or those who would use the money to supplement their income if their injuries have impacted their ability to work. Structured settlements are used when the injured person is a minor or if they have a disability.

The plaintiff will often receive a portion of the settlement up front to pay expenses associated with their claim such as attorney’s fees and medical expenses. The ongoing payments of most structured settlements are made through an annuity plan purchased by the defendant.

Disbursement of settlement funds

The defendant or their insurance company will send a check to your attorney, who will then deposit the check into a specialized and heavily regulated attorney escrow account. From there, your St. Louis personal injury lawyer will pay their fees according to your contract and all expenses owed by you such as to medical providers who provided treatment through a Letter of Protection.

Your attorney will then send you a check for the remaining amount of your settlement. It’s then up to you to pay other outstanding expenses you might have incurred and to wisely manage your settlement.

Tax implications of settlements

Fortunately, most of your personal injury settlement or court award is not taxable by either the state or the IRS. There are, however, a few exceptions:

  • Punitive damages – The purpose of punitive damages is to punish the defendant and deter others from acting in a similar manner. Since these aren’t intended to compensate the injured person, punitive damages are taxable.
  • Interest received – If you received any interest on your settlement, such as if it was paid late, therefore interest accrued on the unpaid amount, then only the interest you received is taxable.
  • Expenses previously deducted – If you previously deducted any expenses associated with your personal injury claim on your tax return, such as medical expenses, then the amount you previously deducted will now be treated as taxable income. This is to avoid a person being credited for something twice.

Do you need help after an accident or injury?

If you’ve been injured in an accident, the skilled personal injury lawyers at Langdon & Emison can help you learn more about the avenues available for recouping your losses. Contact us today at (866) 931-2115 for a free case review.