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What is a lump sum payout?

 

A:

It basically means getting all of your settlement money at one time.

In New York, if you bring a medical malpractice case to trial and the jury awards you money, you will not be able to take all that money in one lump sum. The law requires that after an initial lump sum payment, that you receive your money in increments over time.

This may seem unfair in that you are unable to direct when and how to obtain your money. The NY State Legislature decided to do this after much lobbying on behalf of doctors, hospitals and defense insurance companies as a way to limit the amount of money they were paying to an injured victim at any one time.

A settlement is entirely different.

A settlement is usually paid in one lump sum amount. You also have the ability to take that settlement amount and invest it in different investment products that will allow you to obtain your money periodically over time.

One of the benefits of doing it this way is that you artificially prevent yourself from gaining access to the full amount of money at any one time. Remember, receiving a large lump sum settlement can be very enticing to people who have never experienced handling large amounts of money before. It can be very tempting to begin making large purchases. Studies have repeatedly shown that people who receive large awards in a lump sum settlement, as well as lottery winners, most often spend their money within the first five years.

In an attempt to prevent people from spending their own money too quickly, injured victims are often advised to consider using investment devices that will allow them to receive their money over many years.