One of the important decisions that a recipient of a personal injury settlement can make is whether to accept a lump sum settlement or a structured settlement.

If an individual suffers damages from a responsible party, the law grants to that individual the right to receive compensation for the damages that he has suffered. Experience has shown that a majority of such cases do not actually go to trial, but rather are settled at some point in the litigation process prior to the trial process. Thus, if the case is settled, the injured individual has the right to accept a lump sum settlement or a structured settlement.

If the injured individual, i.e., the plaintiff, selects the lump sum settlement, he will receive the total amount of the injury settlement less any applicable personal injury attorney fees and expenses. This settlement option grants to the individual the obvious advantage of having the ability to receive all of the cash at once, and to be able to use the cash as he sees fit. Before one chooses this settlement option, he should consult his financial adviser as to the possible tax consequences of a lump settlement, as the IRS has determined in certain circumstances that these types of awards may be taxable depending upon the nature and type of injury that the individual suffered.

A second settlement option that the plaintiff might want to consider is a structured settlement. In this instance, the injured party would agree to receive a certain specified amount of money to be paid out over a specified period of time or possibly through life. Often times, the structured settlement payments are made through an annuity that is funded through the funds of the defendant's insurer. This settlement option may be the best choice, when the nature of the injury is severe and when there is the need for continuous treatment, one example can be that of an injury that causes permanent paralysis. This also may be the best settlement option when the plaintiff has little likelihood of earning future gainful employment income.

Regardless of which settlement option is chosen, this matter should be discussed carefully and thoroughly between the plaintiff and the plaintiff's attorney.