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When given the choice with financial settlement options, many Americans choose the lump-sum payment—often to their own detriment.
A new study sponsored by AIG American General Structured Settlements queried more than 1,000 Americans on scenarios and real-life experiences involving financial settlements received from personal injury and accidental death cases. The researchers discovered that when consumers lack education on structured settlements, most risk making choices that may jeopardize their long-term financial health.
Survey participants were asked to respond to two hypothetical scenarios. The first one involved being in a car accident in which significant injuries occurred and resulted in a lawsuit award of $750,000. Participants were not provided any information on structured settlements before responding to questions.
Notable results from this scenario included: - 65 percent indicated they would elect a lump sum as settlement payment.
- 49 percent of those who made that election said they did so because they believed they could make their own long-term financial decisions and plans.
- 26 percent of those who elected a lump-sum payment made that choice because they wanted to allocate money to pay off large bills and reduce debt.
The second scenario involved a $2.5 million settlement awarded as part of legal proceedings after a spouse was killed on the job. Before responding to this scenario, survey participants were provided details and information on structured settlements, including how the products differ from a lump-sum payment.
Armed with that knowledge, 73 percent indicated they would opt for a structured settlement as the means for distribution of the financial award.
“It’s clear that our study underscores a need for the financial services industry to better educate consumers on the benefits and attributes of structured settlement products,” said Bobby Steele, president of AIG American General Structured Settlements.
About one-fifth of survey participants had personal experience to guide them in their decisions. Of the more than 1,000 people polled, 206 indicated that either they or a family member was involved in a personal injury case. Of that group, approximately 185 said that the case resulted in a financial settlement.
Notable results from this group included: - 86 percent of those who had real-life experience with a financial settlement chose a lump-sum payment.
- Of those who elected a lump-sum payment, 57 percent said they were unaware of structured settlement products, and 64 percent said that their attorney did not inform them of the structured option.
- 57 percent of those who elected a lump-sum payment indicated that their entire settlement is already depleted.
“Without a complete picture offered by an attorney or financial advisor, many survey participants viewed a lump sum as the more attractive option,” Steele said. “Alarmingly, what was first viewed as a positive ultimately turned negative as the majority of those polled depleted their settlement.”
On the other hand, 71 percent of those who elected a structured settlement did so to provide a steady stream of income designed to cover expenses. Steele pointed out that those who choose this payment method reward themselves with more economic freedom.
“Both the timing and amount of the payments can be customized to meet individual needs, including covering regular expenses and major life events, such as mortgage payments, loan payoffs, college tuition, and ongoing medical procedures,” he concluded. |
