What Is a Lump Sum Settlement and Is It Right for You?

If you’ve reached a settlement in your workers’ comp case, you’re going to receive compensation for your workplace injury or occupational disease. Now, you must decide: should you accept a lump sum payout or a different type of payment?

Getting all the money immediately may sound appealing, but it’s not always the best choice. Depending on the specifics of your injury and your prognosis, you may want to skip the lump sum settlement in favor of a structured payment schedule.

But what exactly is a lump sum settlement? How does it work and when is it right for you? This guide breaks it all down.

What Is a Lump Sum Settlement?

A lump sum settlement is exactly what it sounds like: you receive your entire workers’ compensation settlement amount as a single, one-time payment rather than in scheduled installments. 

How Does a Lump Settlement Work in Workers’ Compensation?

In Washington State, injured workers are given the option to settle their claims in full with a lump sum settlement. These settlements, referred to as Claim Resolution Settlement Agreements or CRSAs for short, are governed by RCW 51.04.063 and WAC 263-12-052.  

When you and the Department of Labor and Industries (L&I) or a self-insured employer reach an agreement for a CRSA, you can accept a single lump sum payment that settles your claim in full. It’s important to understand that accepting a CRSA settlement means you cannot reopen your claim for additional financial compensation if new issues arise from your injury. You will, however, still be able to reopen for further medical treatment if your injury or disease worsens down the road.

Lump Sum Settlement Pros and Cons

Before accepting any lump sum payment from L&I or a self-insured employer, you should be aware of both the advantages and disadvantages.

Lump Sum Settlement Pros

The advantages of accepting a lump sum payment include:

• Immediate access to funds. A lump sum payment gives you the freedom to meet your immediate financial needs. Especially when you’ve been unable to work or have a lot of unpaid medical bills, getting the entire settlement at once can ease that financial stress.
• Financial flexibility. Once you receive payment, you can do what you want with it. You can pay off outstanding debts or invest the settlement money as you see fit.
• Tax benefits. Lump sum payments are usually tax-free, meaning receiving a large amount of cash won’t result in a huge tax bill that year.

Lump Sum Settlement Cons

While the advantages of a lump sum settlement are tempting, they aren’t the right choice for every person or situation. Some of the cons of lump sum settlements include:

• No future payouts. Accepting a lump sum payment is a one-and-done deal. You get all the money at once, and that’s that. There are no future payments.
• Risky. Because there are no future settlement payments, you have to spend and invest the money wisely. If you make a bad investment or underestimate the amount you need, there’s no way to change the settlement amount.
• May impact other benefits. Depending on your injury and circumstances, you may be eligible for Social Security Disability (SSD). However, accepting a lump sum payout could impact your SSD payment amounts or even your ability to receive SSD. To help limit this potential impact, consider including amortizing language in your agreement. Amortizing means spreading out your lump sum payout over a set period rather than counting it all at once. 

Lump Sum Settlements vs Structured Settlements

Given the pros and cons of lump sum settlements, you may wonder if accepting a structured settlement is right for you. In some circumstances, it is, but just like a lump sum settlement, a structured settlement has advantages and disadvantages to consider. 

A structured settlement allows you to receive the full settlement amount over time. In exchange for not getting the full amount at once, you agree to accept smaller, structured payments over time. These periodic payments are guaranteed until the settlement is paid in full.

Like a lump sum settlement agreement, a structured settlement has advantages such as:

• The payments are usually not considered taxable income
• You receive guaranteed payments for a specific period of time
• Can be flexible; you don’t have to receive the same payment amount every month

Structured settlements are not without their cons, though, and include:

• Your structured payments may not keep up with inflation, eroding your purchasing power.
• It’s not liquid; if you need immediate access to a large amount of cash, you won’t be able to tap your structured settlement for it.
• They are hard to modify even if your circumstances change, as structured settlements are considered final.

>>Learn more about the ins and outs of structured settlements

Should You Take a Lump Sum Settlement or a Structured Settlement?

Deciding between a lump sum settlement and a structured settlement often means balancing your immediate and long-term needs. If it’s likely you can return to work and won’t need additional medical treatment, a lump sum payout may be right for you, especially if you have outstanding bills and expenses. However, if your injury is severe enough that you can’t return to work or you’ll need additional and extensive medical treatment in the future, you may be better off with a structured settlement. 

It’s also important to consider the final value of the settlement amount. It may not be worth the hassle of setting up a structured settlement for a small amount, while accepting a large (say, six-figure) settlement as a lump sum payout may create financial headaches for you.

Lump Sum Settlement Assistance

Deciding between a lump sum and a structured settlement comes down to your immediate versus long-term needs. While you may think you know what those needs are and how much your injuries are worth, calculating the true damages can be far more complex than you realize. Settling too soon or for too little could leave you short on cash and stuck with expensive bills.

An experienced workers’ comp lawyer will navigate negotiations from start to finish. They understand the workers’ compensation process and can help you figure out if a lump sum payout is right for you.

The experienced team at Walthew Law Firm has extensive experience with workers’ comp claims and structured settlements. For over 90 years, they’ve helped injured workers throughout Seattle and Washington State recover the compensation they need to recover from their injuries.

Contact Walthew Law Firm today and learn more about how our team can help you. Schedule your free, no-obligation consultation today and learn more about our services.