Accidents can happen at any given moment. While most get to come out of a potentially fatal scenario unscathed, the less fortunate ones suffer from injuries that stay with them for a lifetime. As a victim of personal injury caused by a negligent party, you have the right to pursue compensation and recover your losses. Consider the cost of your treatment and recovery; being burdened by medical debt is one thing you will want to avoid.
If you were able to succeed in getting compensation, keep in mind that you still need to keep tabs on your finances and make the most of every cent for your recovery. The least you could do is squander your compensation and leave nothing for yourself and your family for the foreseeable future. The guide below can help you decide how to secure your gains and achieve long-term recovery.
1. Determine If a Lump Sum is Ideal
Personal injury victims can choose to receive a lump sum as compensation. This offers a wide range of benefits, especially if there are debt obligations that need to be paid in full or there’s a need to recover wage losses. What’s more, a single payout leads to total closure. If you want to move on from the trauma caused by the accident, this would be ideal because you don’t have to keep communicating with lawyers and insurers until the compensation is paid in full. What’s more, you can pair this with existing assistance programs that cover your condition.
For instance, if you are being compensated for asbestos exposure while at work, you can receive mesothelioma financial assistance through asbestos trust funds, which may amount to $300,000. However, once you’ve received your full settlement, you cannot request to reopen your claim anymore, even if the effects of the accident have worsened. What’s more, you could end up paying for medical expenses from that point onwards. That’s because your medical coverage is already factored into the total computation.
2. Know When to Opt for a Structured Settlement
On the other hand, a structured settlement would be an ideal choice from a personal finance perspective if you want to prevent your money from drying out completely. This option lets you receive fixed tax-free payments monthly or yearly on top of granting protection against asset seizures by creditors, overspending, and financial uncertainty. If you choose to retire as a result of your injury, a structured settlement could take the place of a regular salary. You have complete control of how much you can spend, invest, and save.
This comes with a disadvantage. For the most part, you’re still technically working on your compensation, making it difficult for you to move on emotionally. There’s also the risk of legal disputes, especially in the case of divorce when income sources are also subject to asset division.
3. Track and Settle All Your Obligations
If you still have existing debt to shoulder, you will need to prioritize settling it once you’ve succeeded in your personal injury claim. Keep in mind that your insurer and the healthcare providers that covered your medical bills have the right to recover any liens you have incurred since the accident.
A part of the payment will be taken out of your total settlement, but be sure to work with your attorney and discuss the possibility of lowering your obligations. Apart from these obligations, you may still owe back taxes and unpaid government-backed loans you have incurred when you were hospitalized and out of work.
Once you have cleared these balances, you can then zero in on personal debt that you can pay off fully or partially, depending on the size of your compensation. The injury may have rendered you disabled and forced you into retirement, so it’s important to pay off any credit balances, student loans, and other repayment obligations as soon as you can. Doing so provides you with greater financial flexibility and prevents you from being overburdened by monthly dues.
4. Set Up a Personal Injury Trust
The compensation you received may be hefty, but this may disqualify you from government benefits to which you’re supposed to be entitled. That’s because you will be subject to means-testing, which determines whether you can stand on your own without government assistance.
If you applied for Medicaid or Supplemental Security Income, your benefits are at risk once you’ve received your compensation. The higher the amount, the more likely your benefits will be reduced or terminated, especially if your personal injury compensation exceeds state and federal thresholds.
To ensure you get your full compensation without defaulting on your public benefits, the best move is to set up a personal injury trust or a first-party special needs trust (SNT). Means-tested benefits like Medicaid and SSI are subject to asset limits of $2,000 per individual or at least $3,000 for married couples.
When you place your personal injury compensation in an SNT, you are able to preserve your healthcare and assistance benefits. Another advantage of an SNT is that you get to control how much money you take out, especially if you need to purchase medication in bulk or special medical aids and equipment. That way, you will have more than enough to cover immediate and future needs whenever your financial situation becomes uncertain.
5. Build an Emergency Savings Fund
The fact that you won a hefty payout from your personal injury claim doesn’t give you the license to spend it all in one go. For the most part, the accident may have left you in a great deal of hardship, requiring ongoing therapy sessions and the need for 24-hour assistance on standby.
Even a seven-figure compensation is bound to vanish within just a year. What’s more, you can’t be too sure you will be safe from another accident, so it’s crucial to allocate a portion of your personal injury payout to a dedicated emergency savings account.
As you plan out how you want to invest the money, make sure to set aside at least three to six months of what you’ve lost in earnings. You can extend the period up to five years depending on the severity of your injury, the amount of time you’ve been out of work, and your last salary rate at the time of the accident.
No matter the case, place the amount in a savings account that earns interest over time. Withdraw only when you have urgent costs to cover, such as a sudden illness. Whatever is left from the amount can be invested in a diversified portfolio, consisting of bonds, real estate assets, and stocks.
Endnote
Getting compensated for an injury isn’t a ticket to getting wealthy. Without the right strategies in place, you could burn through your money and leave little to nothing for ongoing medical and support costs. Think it through. Use these tips and secure your full recovery.
