Inflation-Proofing Your Settlement: Structured Settlements in Wrongful Death Claims

When a loved one is tragically lost due to someone else's negligence, the financial compensation received through a wrongful death claim can provide much-needed support. However, one critical concern is whether the compensation will retain its value over time, especially in the face of inflation. Structured settlements offer a potential solution by providing a steady stream of income over time. This article explores whether structured settlements offer inflation protection in wrongful death claims, analyzing ten practical situations to provide a comprehensive understanding.

Understanding Structured Settlements and Inflation

A structured settlement is a financial arrangement where the compensation for a wrongful death claim is paid out in periodic installments rather than a single lump sum. These payments are often backed by annuities purchased from highly-rated life insurance companies, providing a stable and predictable income stream. However, inflation can erode the purchasing power of these payments over time, making it essential to consider inflation protection when structuring settlements.

1. Fixed Payment Structured Settlements

In a fixed payment structured settlement, the periodic payments remain constant throughout the term of the settlement. While this provides predictability, it does not account for inflation, meaning the real value of the payments may decrease over time. For example, if a family receives $1,000 per month for 20 years, the purchasing power of that $1,000 will likely diminish due to inflation.

2. Indexed Payment Structured Settlements

Indexed payment structured settlements adjust the periodic payments based on an inflation index, such as the Consumer Price Index (CPI). This ensures that the payments keep pace with inflation, preserving the purchasing power of the compensation. For instance, if the CPI increases by 2% annually, the payments will be adjusted accordingly to maintain their value.

3. Cost-of-Living Adjustments (COLA)

Some structured settlements include cost-of-living adjustments (COLA), which are periodic increases in the payment amount to account for inflation. These adjustments are typically based on a predetermined formula, such as a fixed percentage increase each year. For example, a settlement might include a 3% annual COLA to help offset the impact of inflation.

4. Hybrid Structured Settlements

Hybrid structured settlements combine fixed and indexed payments, providing a balance between predictability and inflation protection. For example, a settlement might include fixed payments for the first five years and indexed payments for the remaining term. This approach offers some stability while also addressing inflation concerns.

5. Lump-Sum Payments with Inflation-Protected Investments

In some cases, structured settlements may include a combination of lump-sum payments and inflation-protected investments. The lump sum can be used for immediate needs, while the remaining funds are invested in inflation-protected securities, such as Treasury Inflation-Protected Securities (TIPS). This strategy helps preserve the value of the compensation over time.

6. Customized Payment Schedules

Structured settlements can be customized to meet the specific needs of the beneficiaries, including inflation protection. For example, a settlement might include larger initial payments to cover immediate expenses, followed by smaller, inflation-adjusted payments to provide long-term support.

7. Inflation-Indexed Annuities

Some structured settlements use inflation-indexed annuities, which provide periodic payments that are adjusted based on an inflation index. These annuities are designed to protect against the erosion of purchasing power, ensuring that the compensation retains its value over time.

8. Periodic Reviews and Adjustments

Structured settlements can include provisions for periodic reviews and adjustments to address inflation concerns. For example, the settlement agreement might specify that the payments will be reviewed every five years and adjusted based on the current inflation rate.

9. Inflation-Protected Trusts

In some cases, structured settlements may be placed in inflation-protected trusts, which manage the funds and ensure that the compensation retains its value over time. These trusts can invest in inflation-protected securities and other assets to provide ongoing financial security.

10. Legal and Financial Planning

Effective legal and financial planning is essential to ensure that structured settlements offer inflation protection. This includes working with experienced attorneys and financial advisors to structure the settlement in a way that addresses inflation concerns and meets the long-term needs of the beneficiaries.

Conclusion

Structured settlements can offer inflation protection in wrongful death claims, but the specific approach depends on the terms of the settlement and the needs of the beneficiaries. By incorporating indexed payments, cost-of-living adjustments, inflation-protected investments, and other strategies, structured settlements can help preserve the purchasing power of the compensation over time.