If you’ve suffered a severe work-related injury or occupational illness in Pennsylvania, your employer or its workers’ compensation insurance carrier may offer you a settlement of your workers’ comp claim.
Workers’ comp settlements can be lump-sum settlements or structured settlements. Each type of settlement has advantages and disadvantages. Choosing the right settlement type depends on your circumstances, needs, and goals.
Our experienced Pennsylvania workers’ compensation lawyers can help you make the best choice for yourself, your family, and your future. Contact the law firm of Calhoon and Kaminsky P.C. now to learn more about PA workers’ compensation settlements. The consultation is free and confidential.
What Is a Lump-Sum Settlement?
A lump-sum settlement provides a one-time financial payment in a workers’ compensation case. A workers’ compensation insurer will calculate the value of the payment based on factors in your workers’ comp case, such as your future anticipated medical expenses (including whether you have reached maximum medical improvement), lost wages based on your average weekly wage, and ability (or future ability) to return to the workforce.
In Pennsylvania, workers’ compensation carriers sometimes refer to a lump-sum settlement as a compromise and release agreement. Accepting a lump-sum payment represents the end of your workers’ compensation claim, as you release any further legal claims you may have against your employer for the incident under the Pennsylvania workers’ compensation system.
What Is a Structured Settlement?
In a structured settlement of a workers’ compensation claim, the total value of the settlement is paid out over a series of payments. Payments may occur weekly, bi-weekly, or monthly, or parties may agree to a specific schedule of payments.
A structured settlement may involve a significant upfront or final balloon payment. Payments may occur over a set term of years until the total value of the settlement is paid. In rare cases, a structured settlement may provide payments until the worker reaches retirement age or passes away.
Sometimes, an employer or workers’ compensation insurer will purchase an annuity from an insurance company to fund the structured settlement. The employer or workers’ comp insurer will assign payment obligations to the annuity company under the settlement. A structured settlement may also include a separate amount to cover the worker’s future medical expenses as estimated by an actuary.
Advantages and Disadvantages of a Lump-Sum Settlement
An apparent advantage of a lump-sum settlement is immediately receiving a significant amount of money. Injured workers who have incurred significant debts due to a work injury or occupational illness may benefit from a lump-sum settlement by obtaining the funds to pay off those debts. Alternatively, an injured worker can invest a lump-sum settlement payment to provide a steady income stream.
Accepting a lump-sum settlement also provides finality to a workers’ compensation claim, as a worker may not want to worry about continuing to receive periodic payments. Workers may prefer a lump-sum settlement if they have other sources of income.
However, lump-sum settlements may disadvantage workers by providing less compensation than they might receive in a structured settlement. Lump-sum payments may also leave workers responsible for future medical care for their work injury or occupational disease. Accepting a large amount of cash in a lump-sum settlement might also affect government benefits a worker might receive, such as Social Security Disability or Medicaid.
Some workers might feel uncomfortable receiving a large amount of money due to fears of spending it too quickly or family and friends asking for handouts or loans.
Advantages and Disadvantages of a Structured Settlement
Structured settlements can provide injured workers with several advantages over a lump-sum settlement. Receiving periodic payments might help workers manage the money they receive from their settlement or provide a steady stream of income if they don’t have other household members who work or other sources of regular income.
Structured settlements can benefit workers who serve as their household’s sole breadwinner or who become permanently disabled from work. With a structured settlement, workers may not have to worry about budgeting or managing the investment of a lump-sum payment.
Structured settlements frequently provide workers with more total compensation than lump-sum settlements. Because an employer can spread out the total cost of the settlement over time or purchase an annuity to fund the settlement, the employer may agree to a higher total value in a structured settlement.
However, structured settlements may disadvantage workers in certain circumstances. For example, workers who have incurred significant debt must pay down those debts over time from the payments in a structured settlement. Workers also risk not receiving their structured settlement payments in the future, whether due to administrative errors or the employer or insurance company responsible for making the payments going out of business.
Deciding Which Is Right for You
Various factors may influence your decision between a structured settlement vs. lump-sum settlement in a Pennsylvania workers’ compensation claim, including:
- The type and severity of the work-related injuries or occupational illness you’ve suffered
- Whether you’ve become permanently disabled from working
- Your current and future anticipated financial situation, such as whether you have other household members who work or could find work or whether you have other sources of money or income
- Your tax situation and the tax implications of the settlement
- Your current lifestyle and spending habits
- Your financial security and future expenses
- Your current and future health condition, including whether you anticipate needing additional medical or long-term care for your work injury or occupational illness
- Whether you have debts you need to pay off soon
- Your comfort with managing or investing large amounts of money
- Whether you need and can qualify for Social Security Disability benefits or means-tested government programs like Medicaid
- Your desire for closure in your workers’ compensation claim
- The financial health of the company responsible for structured settlement payments
An experienced workers’ compensation attorney from our law firm is ready to sit down with you to discuss your circumstances, evaluate your needs and goals, and advise you on whether to pursue a lump-sum or structured settlement. We can also negotiate fair settlement terms tailored to your interests.
Contact the Workers’ Comp Lawyers at Calhoon & Kaminsky P.C. Now
When you need help negotiating a workers’ compensation settlement in PA, our workers’ comp lawyers can advise you on the pros and cons of lump-sum and structured settlements. Contact Calhoon & Kaminsky, P.C., today for a free, no-obligation consultation with our legal team to better understand the differences between structured and lump-sum settlements.
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For more than 20 years, our attorneys have been helping injured workers navigate the complex Pennsylvania workers’ compensation system. We empower workers with the information and the representation they need to make the best decisions for themselves and their families’ future.
