When a worker is injured on the job, they may receive workers’ compensation benefits to cover any medical expenses, lost wages, and other related costs. According to the National Academy of Social Insurance, almost 136 million individuals had workers’ comp coverage in 2020. In some cases, the injured worker may receive their benefits in a lump sum payment, while in others, they may receive a structured settlement that provides periodic payments over time for a time period or even for a lifetime.
Eligibility for Workers’ Compensation
To be eligible for workers’ compensation benefits, an employee must have suffered an injury or illness that is work-related. This means that the injury or illness occurred while the employee was performing their job duties or as a result of their work environment. Eligibility requirements may vary by state, but generally, most employees are covered by workers’ compensation insurance.
Types of Qualifying Injuries and Illnesses
Workers’ compensation covers a wide range of injuries and illnesses, including:
Benefits Provided by Workers’ Compensation
Workers’ compensation provides various benefits to injured employees, such as:
What are Structured Settlements?
A structured settlement is a financial arrangement in which an injured employee receives compensation through a series of periodic payments over an extended period, rather than as a single lump-sum payment. Structured settlements are designed to provide long-term financial security and are often used in workers’ compensation cases involving serious or permanent injuries.
How Structured Settlements Work in Workers’ Compensation Cases
In a structured settlement, the employer or their insurance company agrees to pay the injured employee a specified amount of money over time. These payments are typically funded through an annuity purchased from a life insurance company. The terms of the structured settlement, such as the payment amount, frequency, and duration, are negotiated between the parties involved.
Parties Involved in Structured Settlements
The main parties involved in a structured settlement in a workers’ compensation case include:
Structured Settlements vs. Lump-Sum Payments
A lump-sum payment is a single, one-time payment made to an injured employee as compensation for their work-related injury or illness. This payment is meant to cover all past, present, and future expenses related to the injury.
Pros and Cons of Structured Settlements
Structured settlements offer several advantages, such as:
However, structured settlements also have some drawbacks:
Pros and Cons of Lump-Sum Payments
Lump-sum payments provide the following benefits:
On the other hand, lump-sum payments also have disadvantages:
I Received A Worker’s Compensation Settlement. What Shall I Take: Structured Settlement Or A Lumpsum?
Factors to Consider When Choosing Between Lump Sum and Structured Settlements:
Financial Needs and Goals:
Consider your current financial situation and long-term goals when deciding between a lump sum and a structured settlement. If you have immediate expenses or debts to pay off, a lump sum may be more appropriate. However, if you prioritize long-term financial stability, a structured settlement may be the better choice.
Age and Life Expectancy:
Your age and overall health should play a role in your decision. If you are younger or have a longer life expectancy, a structured settlement can provide a reliable income stream for many years. Conversely, if you are older or have a shorter life expectancy, a lump sum may be more beneficial.
Severity of Injury and Long-Term Medical Needs:
If your workplace injury is severe and requires ongoing medical treatment, a structured settlement can help ensure that you have the funds available to cover these expenses over time.
Money Management Skills:
Be honest with yourself about your ability to manage a large sum of money. If you have a history of financial mismanagement or are unsure of your investment skills, a structured settlement may provide a safer option.
Tax Implications:
While workers’ compensation benefits are generally tax-free, any interest or investment income earned from a lump sum settlement may be subject to taxation. Consult with a tax professional to understand the potential tax consequences of your settlement choice.
Impact on Government Benefits:
Receiving a lump sum settlement may affect your eligibility for certain government benefits, such as Social Security Disability or Medicaid. A structured settlement may help preserve your eligibility for these programs.
Medicare and Workers’ Compensation Settlements
Explanation of Medicare Set-Aside Arrangements
A Medicare Set-Aside (MSA) is a financial arrangement that allocates a portion of a workers’ compensation settlement to cover future medical expenses that would otherwise be paid by Medicare. The purpose of an MSA is to ensure that Medicare does not inadvertently pay for treatment related to the work injury, as Medicare is considered a secondary payer in these cases.
Importance of MSA in Workers’ Compensation Cases
In cases where an injured employee is a current or potential Medicare beneficiary, an MSA is crucial to protect Medicare’s interests and comply with federal regulations. Failing to properly account for future medical expenses through an MSA can result in penalties and legal consequences for both the employer and the employee.
Benefits of Funding MSA with Structured Settlements
Funding an MSA with a structured settlement offers several benefits:
How Do Workers Compensation Settlements Work?
The structured settlement process is quite complicated unless you have legal advice by your side. Here is a brief explanation of what the process might entail:
Step#1: Determine the Value of a Workers’ Compensation Settlement
The value of a workers’ compensation settlement depends on several factors, including:
Attorneys and insurance professionals often use specialized software and actuarial tables to calculate the estimated value of a settlement.
Step#2: Negotiate the Terms of the Structured Settlement
Once the parties agree to pursue a structured settlement, they must negotiate the specific terms of the agreement. This includes:
Negotiations may involve attorneys, insurance representatives, and structured settlement professionals to ensure that the terms are fair and meet the needs of all parties involved.
Step#3: Select a Life Insurance Company to Fund the Structured Settlement
When selecting a life insurance company to fund the structured settlement, several factors should be considered:
It is essential to choose a reputable and financially strong life insurance company to ensure the security of the settlement payments.
Required Documentation and Approvals
Finalizing a structured settlement requires various documents and approvals, including:
Attorneys and structured settlement professionals can assist in preparing and executing the necessary documents to ensure a smooth and compliant process.
Real-Life Examples
To better understand how structured settlements work in workers’ compensation cases, let’s look at a few real-life examples:
Example 1: Construction Worker with Traumatic Brain Injury
John, a 35-year-old construction worker, suffered a severe traumatic brain injury when he fell from a scaffold. As a result of his injury, John was unable to return to work and required ongoing medical care and support.
As part of his worker’s comp settlement, John received a structured settlement that provided him with:
By receiving his compensation through a structured settlement, John was able to ensure a stable source of tax-free income to meet his long-term needs.
Example 2: Nurse with Repetitive Stress Injury
Sarah, a 45-year-old nurse, developed a severe repetitive stress injury in her shoulders and neck after years of lifting and transferring patients. Despite multiple surgeries and extensive physical therapy, Sarah was unable to return to her previous job.
As part of her workers’ compensation settlement, Sarah received a structured settlement that provided her with:
By receiving her compensation through a structured settlement, Sarah was able to ensure a stable source of tax-free income to meet her long-term needs and avoid the risk of depleting a lump sum payment too quickly.
Final Word!
Structured settlements can be a good solution in workers’ compensation cases, providing injured workers with a stable source of tax-free income to meet their long-term financial needs. By understanding the benefits and considerations involved in structured settlements, claimants and their attorneys can make informed decisions about how to structure their compensation to best support their recovery and future well-being.
If you or a loved one has been injured on the job, it’s important to work with experienced workers’ compensation professionals who can guide you through the process and help you explore all of your options, including structured settlements.
Frequently Asked Questions On Structured Settlements And Workers’ Compensation
How Fairfield Funding Can Assist with Workers Compensation Settlement
Fairfield Funding is a trusted partner in the structured settlement process, offering expert guidance and support to injured employees, employers, and attorneys. With years of experience and a deep understanding of the intricacies of structured settlements, Fairfield Funding can:
By working with Fairfield Funding, all parties can benefit from the expertise and dedication of a team committed to achieving the best possible outcomes in workers’ compensation structured settlements.
