Receiving a structured settlement—whether from a personal injury case, wrongful death lawsuit, or insurance claim—can feel like a financial blessing. It offers tax-free, reliable income spread over months or years. But for many people, that blessing quickly turns into a burden due to poor decision-making.
In this article, we explore the top 5 mistakes people make after receiving a structured settlement and how to avoid them to secure your long-term financial future.
✅ What Is a Structured Settlement?
Before diving into the mistakes, it’s important to understand what a structured settlement actually is. A structured settlement is a financial agreement where a claimant receives compensation through regular payments instead of a lump sum.
Structured settlements are designed to:
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Provide long-term financial security
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Ensure disciplined payouts
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Minimize tax liability (often tax-free under U.S. law)
But even with all those benefits, missteps can lead to financial stress down the road.
⚠️ Mistake #1: Selling the Structured Settlement Too Quickly
One of the most common—and most costly—mistakes is selling your structured settlement too soon after receiving it. Many people are tempted by companies that offer to "buy your payments for cash now."
These companies typically offer much less than the total value of your settlement—sometimes as low as 50 cents on the dollar.
📉 Why It’s a Problem:
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You lose a large portion of your money
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Sales are usually irreversible
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It can jeopardize your long-term financial security
🧠 How to Avoid It:
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Only consider selling if you face a true financial emergency
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Always consult with a financial advisor or attorney before signing anything
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Explore partial sale options if you need just a small lump sum
💡 Tip: Ask for the “discount rate” used to calculate your offer. If it’s above 9–10%, walk away.
⚠️ Mistake #2: Not Having a Financial Plan
Many people assume that structured payments will “just take care of things,” but no amount of money manages itself. Without a clear financial plan, it’s easy to misallocate your settlement funds—even if they come in small, regular installments.
📉 Why It’s a Problem:
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You may overspend during high-payment months
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You might miss out on investment opportunities
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You could fall short of long-term goals (retirement, education, housing)
🧠 How to Avoid It:
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Work with a certified financial planner (CFP) to create a structured budget
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Set financial goals for each phase of your life (short-, medium-, and long-term)
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Track your spending and savings monthly
💡 Tip: Use budgeting tools like Mint, YNAB, or spreadsheets to monitor your finances.
⚠️ Mistake #3: Ignoring Tax and Legal Advice
While most structured settlements are tax-free, not all of them are—especially if the settlement involves punitive damages, lost wages, or interest. Additionally, if you invest or resell parts of your settlement, tax complications can arise.
📉 Why It’s a Problem:
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Unexpected tax bills can eat into your payments
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Legal missteps could void parts of your agreement
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Lack of compliance can lead to penalties or garnishments
🧠 How to Avoid It:
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Consult a tax professional to understand how your settlement is classified
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If you're selling or restructuring your payments, get advice from a settlement attorney
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Keep records of all documents, agreements, and communications
💡 Tip: Search for “structured settlement tax rules” specific to your state or case type.
⚠️ Mistake #4: Falling for Scams or High-Pressure Sales Tactics
Unfortunately, structured settlement recipients are often targeted by fraudulent companies, financial predators, and scammers. They know you have guaranteed income, and that makes you a target.
Common schemes include:
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Offers to "double your money" by investing in fake opportunities
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High-pressure calls to sell your settlement for fast cash
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"Financial advisors" without credentials trying to manage your funds
📉 Why It’s a Problem:
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You could lose part or all of your payments
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Scams often come with hidden fees, high interest, and bad contracts
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Once the money’s gone, there’s little chance of recovery
🧠 How to Avoid It:
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Vet all companies through the Better Business Bureau (BBB) or FINRA BrokerCheck
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Say no to anyone promising unrealistic returns
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Never sign a contract you don’t fully understand—get legal help if needed
💡 Tip: Real financial professionals won’t pressure you. If someone is rushing you, it’s a red flag.
⚠️ Mistake #5: Not Planning for Inflation and Emergencies
A structured settlement may seem generous today, but inflation can reduce your purchasing power over time. Likewise, unexpected emergencies—medical expenses, car repairs, job loss—can strain your monthly payments.
📉 Why It’s a Problem:
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A $2,000 monthly payment may not go as far 10 years from now
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Emergencies could force you to sell part of your settlement at a loss
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Lack of a safety net leads to stress and instability
🧠 How to Avoid It:
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Build an emergency fund equal to 3–6 months of expenses
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Consider putting aside a portion of each payment into a high-yield savings account
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If possible, ask if your settlement can include cost-of-living adjustments (COLA)
💡 Tip: Don’t just survive—plan to thrive. Regularly review your finances to stay ahead.
💼 Final Thoughts: Structured Settlements Need Smart Strategy
Structured settlements can offer financial peace of mind—but only when handled with care. Many people make costly mistakes by rushing into decisions, trusting the wrong people, or failing to plan ahead.
✅ Recap: Top 5 Mistakes to Avoid
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Selling your structured settlement too soon
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Failing to create a long-term financial plan
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Ignoring tax and legal advice
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Falling for scams or predatory offers
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Not preparing for inflation and emergencies
The key is to treat your structured settlement like any other financial asset. It requires discipline, planning, and the right guidance to ensure it supports your goals—not just today, but for decades to come.