Lump Sum vs. Annuity: What’s the Difference?

settlement cash

When it comes to accident and personal injury lawsuits, many civil cases never make it to trial. This happens due to a settlement agreement being reached by both parties during the early stages of the litigation process. A settlement requires the plaintiff to discontinue any further legal action in exchange for a payment from the defendant or their insurance company.

After settling or winning a lawsuit, the plaintiff will receive a cash award paid out over the course of a lifetime (or several decades) or they may receive a lump sum. While stipulations surrounding a lump sum payout vary, there are companies devoted to buying annuities in exchange for a lump sum settlement. This allows the recipients to decide if they would prefer all their cash at once or if getting it a little bit at a time is more beneficial. But what are the differences between annuities and lump sum payouts?

Annuity: A fixed sum of money paid to a recipient annually.

Lump Sum: When a financial reward is paid out all at once rather than over the course of a number of years.

Structured Settlement: a payout from a legal settlement paid out as an annuity instead of a lump sum; concept emerged in mid-1950s.

A recent survey found that 65% of respondents would prefer to receive a lump sum payment instead of a structured settlement paid as an annuity. If you find yourself to be one of the 76% of Americans currently living paycheck-to-paycheck, receiving a lump sum may make more sense than an annuity. Many recipients of lump sum settlement cash choose to use the money to eliminate debt.

If you need extra cash to help with your living expenses and believe you might have trouble receiving access to your settlement cash, you can request cash prior to your case being resolved. Your current financial situation will likely effect how you decide to receive your winnings.

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