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When They Know, They Want

The results of a new consumer survey confirm that people who have been informed about structured settlements will overwhelmingly choose one if given that option. Sadly, the opposite is also true: most people are never informed that they qualify for a structure, not even by their own attorney.

The research was conducted in September 2007 and focused specifically on settlements awarded in personal injury cases.1 Of the respondents, 80% had no direct connection to a personal injury case, while the other 20% cited that they or a family member did. These people were then asked at random to consider two hypothetical scenarios and answer questions on how they would elect to receive the settlement proceeds. Those who had direct involvement with a personal injury case were asked additional questions based on their real life experience. Their answers were not only interesting but also enlightening.

One group was given no education on structured settlements and asked to imagine that they were 35 years old and married with three kids when involved in an auto accident resulting in their becoming a paraplegic. After years of litigation they are awarded $750,000. At this point they were asked to make a decision as to how they would prefer to receive their award. With no education on the difference between a lump sum cash settlement and a structured settlement, 65% of respondents chose the cash over the structure. The reasons given for this decision were: 49% said they can make their own financial decision and plans, 26% wanted to pay off bills and loans, 16% said they wanted the flexibility of not being locked into an annuity, 6% said cash guarantees financial independence, and the remaining 3% of responses varied.

Before being asked to consider a slightly different scenario, the other group was first educated as to what a structured settlement was and how they work. After being informed of this option, they were presented with a different scenario: spouse killed leaving them to raise a young child alone. With their attorney advising them to accept a settlement offer valued at $2,500,000, they were then asked how they would prefer to receive their settlement. With advance knowledge about structures, 73% chose the structured settlement and only 27% chose a lump sum. The reasons they gave for choosing the structured settlement are enlightening in their simplicity: a whopping 71% favored the structure because it provided a regimented stream of income to meet monthly expenses. 19% said a structure would guarantee them financial independence, 5% did not trust themselves or their family to make financial decisions and plans, the remaining 7% of responses varied. While favored tax treatment surely played a role in their overall valuation of this option, note that it was not the primary reason most would structure their settlement. Most simply wanted the security that comes from a reliable monthly income to meet expenses. Wouldn’t we all?

This survey really only scratched the surface of what our industry would like to know but it did touch on several very important areas. First, we learned that, despite the relentless cheesy commercials sponsored by factoring companies i and the fact that claimants are in direct contact with insurance company professionals (in the form of the claimspeople who handled their claim), most people still don’t know what a structured settlement is. The word is simply not out.
Second, we have also found that when they know what a structure is, they want one– but not for the reasons we all think. They have suffered a destabilizing random event – the injury. Consequently, this has shaken their confidence in the predictability of life itself. Plans? How can you make plans when things like an accident can so easily knock you off track? In this survey 71% of respondents answered that by saying just give me a steady source of income and I’ll rebuild my life on top of that. The security of a guaranteed source of income is remarkably appealing. Even the lump sum option was revealing in that it tells us what they need the cash for. Veterans and long time clients know that a “structured settlement” almost always contains a “cash settlement” as well. The cash up-front portion of our settlement proposals are intended to meet these identified needs. Thoughtful plans take the claimant’s full circumstance into account.

Of the 1000 people surveyed 20% reported they had a direct relationship with a personal injury case. In that group 86% reported that they or a family member chose a lump sum cash settlement. Of those who chose a cash settlement, 57% report that they did not know what a structured settlement was. In addition, 64% of those who chose a cash settlement said that their attorney did not inform them about this option.

Finally, 57% of those who took a lump sum settlement said their entire settlement was already depleted, 10% reported having less than 25% remaining, 17% reported having between 25% and 75% remaining, and only 12% reported having at least 75% of their settlement proceeds still in hand. After years and years of reading about mythical “studies” (that no one could substantiate), we now have real data that confirms what we all know from frontline experience: preserving a single large influx of cash is exceedingly difficult for people from any walk of life and these polled claimants fared no better: when people take all cash, it doesn’t last.

Personal injury victims and their families need to be educated about all the settlement options available to them. Do you know anyone contemplating a personal injury settlement? Call Frank C. Kilcoyne, CSSC at 800-544-5533. School’s in session.

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1Survey of over 1,000 people conducted by Esearch.com and sponsored by AIG/American General Structured Settlements. Click hereAIG_SS_Survey_4048 to see the full survey itself or call our offices at 800-544-5533 to request a hard copy by ground mail.

iFinance companies seeking to purchase a claimant’s right to receive their future payments, typically at present values nowhere near their equivalent value to the claimant.