For decades, Structured Settlements have proven to be the best way for an injury victim, who has an impaired work life to guarantee investment security of their damage award. Unlike anything else in the investment world, as they are available only to victims of collisions who receive compensatory damages, structured settlements are tax free, guaranteed by two life insurance companies, are non-assignable, non-commutable and non-transferable. Thus the victim in the future or the victim’s family in the future cannot decide to collapse the structure and take the lump sum out. This helps preserve regular, guaranteed monthly payments to the victim for a set period of time, for severely injured victims – for life.
How Do Structured Settlements Work?
As a result of long term low interest rates, and given that structured settlements are conservative investment vehicles and the rate of return is based upon the rate of return of bonds, many people feel that a structured settlement is a poor investment as they could do better in the stock market. Setting aside the long term return in the stock market being only marginally better than bonds, and setting aside the fact that in the stock market one can lose 50%, 75%, even 100% of investment capital, the future of structured settlements involves creation of two products to address people who still want to invest in the stock market with their personal injury settlement.
The first of these two products is a Market Indexed (MI) structured settlement. In a MI structured settlement, the indexation takes place by reference to market performance of the S&P 500 as opposed to the Consumer Price Index. A Market Index structured settlement has the certainty of a floor value and the upside benefit of increased income based on market performance – however it is capped with an annual ceiling at 5%.
Another structured settlement product is the Convertible Lump Sump. This allows the injured victim to receive a specified lump sum payment on a specific future date with the goal that the victim will reinvest that sum in a predetermined structured settlement plan which would presumably be at higher interest rates sometime in the future.
The foregoing two products are a very good answer to victims who still are misguided by financial planners who want to steer them into the stock market as a result of greater fees to the financial planner, as it allows for some upside to market performance. The bottom line however is that with existing structured settlements, and even without the foregoing innovations, structured settlements significantly beat comparable investment options when compared with the fact that structured settlements have tax free status.
If you are the victim of a serious motor vehicle collision and will have impaired work capacity going forward it is crucial that your personal injury lawyer discuss the structured settlement option. Indeed, in our opinion for the severely disabled it should form part of every large injury settlement.
Handel Law Firm is Alberta’s serious personal injury and fatal accident law firm serving the cities and areas of Red Deer, Fort McMurray and Grande Prairie. Contact our lawyers today for your personal injury and fatal accident cases in Alberta.