If you have been injured on the job or if you are suffering from an occupational illness, you are forbidden to sue your employer or coworkers, even if their negligence was responsible for hurting you. Instead, your employer is required—in every state except Texas—to participate in the state workers’ compensation program, which will pay your medical bills and even a portion of your lost wages.
Conventionally, after you have been injured, those payments will come at regular intervals. You might receive monthly or biweekly wage supplement checks, for instance. But state governments have also begun offering an increasingly popular option: lump-sum settlements for workers’ compensation claims. If you accept a lump-sum settlement, you get a one-time large payment, but you can’t go back to your employer and demand more money later.
Employers—and their workers’ compensation insurance carriers—often prefer the lump-sum payout to monthly checks, particularly for permanent disability claims. A single large payment allows the insurance company to close the books on the case, rather than hand over check every two or four weeks for an indefinite period. Not only does the insurance company benefit from being able to assign a fixed dollar value to your claim, but it also knows that the amount it offers will almost certainly be less than the total it would pay for an open-ended compensation case.
If you are receiving workers’ comp wage benefits, you may find yourself pressured to accept a lump-sum check to settle your claim. Be very cautious: this sort of settlement may not be in your best interest. You should assess your future needs very carefully before signing a release form in exchange for a large check.
Beware the sales pitch
Agents for your employer’s workers’ comp insurance company will try to convince you that accepting a lump-sum check would be a good idea. They may make any of the following arguments:
- “You get flexibility. You can use the money to make a larger purchase—like a car—or to pay off your credit cards, instead of saving over a long period.”
- “As it stands now, your benefits end when you die. But with a lump-sum payout, you can pass on anything you haven’t spent to your heirs.”
- “You can invest the money and get a better rate of return.”
- “This big settlement is yours forever, even if you get better. You won’t have to worry that your employer may terminate your benefits in the future, or that you’ll lose your benefits if you retire or find a new job.”
Remember, though, that this advice is coming from someone whose goals are not the same as your own. The insurance worker wants you to settle your case for the lump sum. There are some important reasons why you might not want to do that:
- Your disability compensation is your income for the rest of your life. It’s far more difficult to keep to a budget if you are drawing on a limited asset, even if it large.
- The insurance representative may think you will be too dazzled by a large check to think clearly. He may be offering you a lowball settlement that is completely inadequate for your future living expenses, and gambling that you will accept the offer.
- If you spend some of your “windfall” on a big-ticket item—a home theater system, a vehicle, or the down payment on a house—you may outlive your financial resources.
- State and federal taxes may take a much larger cut of your lump-sum settlement than they would take from your monthly disability payments.
- Depending on your state laws, accepting a lump-sum settlement for your lost income and earning potential may also mean termination of your workers’ comp medical benefits. Maybe that’s okay, if you have achieved the maximum medical improvement. However, if you develop additional health complications from your workplace injury, the lost medical benefits could be catastrophic.
Balancing the benefits and the risks
You’re an adult, responsible for your own choices. You have to decide whether a lump-sum payout for your workers’ compensation claim is the best course of action. What will you do?
The most prudent course of action is to consult someone with years of experience in these matters: a trusted workers’ compensation lawyer.
Our attorneys practice in Delaware, New Jersey, Ohio, and Pennsylvania, and we may be able to refer you to affiliated lawyers in other states. We are familiar with state rules on lump-sum settlements and can give you the legal counsel you need before you sign away your workers’ compensation rights.
Find out about our services by contacting us toll-free today at 800-266-7639. Just for calling, we will send you a FREE copy of The Book on Comp, our guide for clients who need to understand the complexities of workers’ compensation law.Google+