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How are Personal Injury Settlements Paid Out

Updated: Jun 20, 2022

It is normal to wonder how you might receive the money that is coming to you as your attorney nears the end of negotiations to settle your personal injury claim.

This blog entry presents FAQs that discuss how insurance company settlements are normally received by injured parties after negotiations are completed by a personal injury lawyer on their behalf. It also provides other important information about insurance company payouts. Included are:

  1. What is a lump-sum payout?

  2. What is a structured settlement?

  3. What happens immediately after my personal injury claim is settled?

  4. How much of my settlement will I actually get?

  5. Can I just deposit a settlement check into my bank account?

  6. Who can help me invest my settlement payout?

  7. What are some good ways to use settlement monies?

  8. Can a settlement payout be invested?

  9. How do I begin a personal injury claim?

1. What is a lump-sum payout?

With lump-sum payouts, injured parties receive their entire settlements in a single payment (minus lawyer and other fees). Opting for a lump-sum payout offers you the benefit of liquidity, and you can invest the money however you want.

But before choosing a lump-sum payout, you need to carefully consider your financial management skills in light of not only your present needs but your future needs as well. These include medical expenses, retraining costs, rehabilitation, restoration of lost or damaged property, long-term care, and more.

If you are a novice at investing, you might want to choose a structured settlement (see 2) instead of a lump-sum payment (see source).

2. What is a structured settlement?

Structured settlements are insurance or financial agreements negotiated by a structured settlement broker. In such an arrangement, after the lawyer and other fees are paid, you use some or all of your remaining payout to purchase an annuity.

By choosing a structured settlement in lieu of a lump sum (see 1), you consent to receive part or all of your settlement by way of periodic payments on an established schedule, whether for a specific length of time or for the rest of your life (see source).

Although structured settlement instruments offer a broad range of payout terms, keep in mind that they are unalterable once you have signed a contract. On the other hand, structured settlement contracts accrue interest over time, so they often yield more than a lump-sum payout.

3. What happens immediately after my personal injury claim is settled?

  • Release signing and paperwork. Paperwork requirements are different across various jurisdictions and circumstances. But the most important document you will sign is a release that specifies you will not attempt to secure any more compensation from the insurance company and/or the at-fault party. This frees them from any future liability or damages.

  • Check issue and deposit. After receiving the release, the at-fault party’s insurance company cuts a settlement check that is payable to both you and your attorney.

  • Satisfaction of debts and medical bills. You likely owe a portion of your settlement to third parties. This can include past-due bills from medical providers. If Medicaid or a health insurance company paid your medical bills, they might require reimbursement. Your personal injury attorney will negotiate these liens—something that can somewhat delay receiving your payout. But doing so ensures that you pay less from the trust fund than you would without such negotiations.

  • Check is issued to you. After all liens, legal fees, and other expenses are paid from the trust fund, your personal injury attorney will provide you with a copy of the release along with invoices for paid expenses. You will be given a check after some final paperwork. You can use the entire check amount as a lump sum payment, or in part or whole to buy a structured settlement (see 2).

4. How much of my settlement will I actually get?

Personal injury lawyers usually manage cases on a contingency basis, which means you have likely paid nothing for his or her efforts so far. Instead, you will pay your lawyer a portion of the settlement.

A portion of your settlement will be used to pay any past-due bills from medical providers. Also, if Medicaid or your health insurance company covered your medical bills, they might seek payment.

5. Can I just deposit a settlement check into my bank account?

You can deposit your settlement check into a bank account just like you would any other. If the check is very large, the teller might ask for authorization to do so from a manager. Until your bank verifies that the issuer has adequate funds to satisfy the check, the funds likely will not be available to you for a few days. When you have access to the money, you should move it someplace where it can earn interest until you decide your course of action (see 6).

6. Who can help me invest my settlement payout?

If you are not comfortable or knowledgeable about financial planning and investments, you should hire a fiduciary financial advisor.

“Fiduciaries” are financial advisors who hold your best interests above any other consideration. Put more plainly, because they work for a fee that you pay them, they are not incented to sell you insurance products or annuities that you might not necessarily need—but earn them a commission.

Not all financial advisors are fiduciaries. The legislation surrounding the obligations of financial advisors is ambiguous. And the responsibility is solely up to you for verifying that your financial advisor is indeed a fiduciary.

The easiest way to make sure that your financial advisor is a fiduciary is to opt for one who is a certified financial planner (CFP). The ethical code for CFPs stipulates that one “must act as a fiduciary, and therefore, act in the best interest of the client.”

To verify if someone is a CFP, check the CFP website.

7. What are some good ways to use settlement monies?

Investing significant amounts of money without securing good financial advice and guidance can end up costing you a lot more than the fiduciary fees you would have otherwise paid for a CFP (see 6).

Keep in mind that giving financial advice is not the business of Galindo Law, and the information presented below is not meant as such. With that said, you might want to discuss with an investment advisor:

  • IRA funding. Roth IRAs and traditional IRAs are the two kinds of individual retirement accounts (IRAs) available to you. How they are taxed is the largest difference between them.

  • What you contribute to a traditional IRA is tax-deductible. But down the road, your withdrawals will be taxed as income. In contrast, what you contribute to a Roth IRA is not tax-deductible. But when the time comes, your withdrawals are tax-free. (You are allowed to make withdrawals from either without penalty after age 59 ½ years. Other conditions apply.)

  • HAS funding. Health savings accounts (HSAs) are just like personal savings accounts. The difference is that the money you save in them can only be used to pay healthcare costs. The advantage of a HAS is that the money deposited in a given tax year is fully deductible (see source).

  • You must have a high-deductible health plan to be eligible to open a HAS. For 2022, according to the IRS, a high deductible health plan must have a deductible of at least $1,400 for an individual or $2,800 for a family (see source).

  • If you do not spend the money on healthcare right away, another advantage of a HAS is that the funds in it can be invested (if your HSA custodian allows it), and the interest and dividends that you earn are tax-free (see source).

  • If you are mainly healthy and want to save for future healthcare, an HSA might be an attractive option. It also might make sense if you are near retiring, as the funds can be used to pay healthcare costs after you do so.

  • Contrarily, if you think you will need expensive medical care in the next year, and it would be challenging for you to meet a high deductible, an HSA and high-deductible health plan might not be in your best interest (see source).

8. Can a settlement payout be invested?

Yes. But remember that while the largest part of your settlement will probably be tax-free, the interest and dividends you earn from investing it in stocks, bonds, or other instruments will be fully taxable.

Also, remember that many investment choices have commissions or sale charges that can significantly diminish fund growth. You need to compare these with “no-load” investments, which do not charge such fees.

As stated earlier (see 6), you should seek professional advice, especially if you are an inexperienced investor.

9. How do I begin my personal injury claim?

Galindo Law offers a strong and proven record of calculating damages, identifying liable parties, and producing results across the most involved and complex personal injury cases, nationwide.

We offer a 20+ year legacy of winning and recovering financial compensation for personal injury, accidents, and insurance claims on behalf of our clients.

Our personal injury attorneys stand ready to listen to your concerns and guide you on how to proceed with your personal injury case.

Galindo personal injury lawyers charge no out-of-pocket or upfront fees. We are only paid a percentage of the settlement we secure for you. So by working with Galindo Law, you have zero financial risk—with nothing to lose and everything to gain.

Contact Galindo Law today if you or a loved one have suffered major or minor injuries in an accident.

Remember that proper compensation for pain and damages caused by an accident is your right. You are not asking for charity. You deserve to be adequately compensated for your loss.

Or, if you prefer, email us.

And thank you for reading our blog!


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