Workers’ comp statistics reveal that, while there are approximately 200,000 workplace accidents in Illinois annually, less than 40,000 workers’ comp claims are filed with the state [1]. When an injured worker receives their workers’ compensation benefits, they can choose a structured settlement or a lump sum payment.
A lump sum settlement can be an attractive option, as it represents closure and financial stability. However, this also means the insurance company is not responsible for future medical treatment, as the workers’ compensation claim cannot be renegotiated.
Workers must consult an experienced workers’ comp attorney before they accept a lump sum payment to ensure they’re getting a fair deal. If you’ve experienced a work-related injury, Rosenfeld Injury Lawyers can help you determine the best action for your workers’ comp settlement and protect your legal rights.
What Is a Lump Sum Settlement?
A lump sum settlement is a one-time payment negotiated with the workers’ comp insurance company. Also called a Compromise and Release, it closes the workers’ compensation case and releases the company from any further responsibility.
Unlike ongoing structured payments, a lump sum payment will not provide further compensation after it is dispersed. After you accept a lump sum settlement offer, you cannot renegotiate, even if you have additional medical expenses.
The worker typically waives any future benefits directly related to the workers’ comp case, meaning that any future medical care has to be paid for by another insurance plan or out of pocket. This is why you must consult a workers’ compensation attorney and reach maximum medical improvement before you accept a lump sum settlement offer.
Advantages & Disadvantages of a Lump Sum Settlement
A lump sum settlement for a workers’ compensation claim has advantages and drawbacks, making it crucial for an injured employee to consult with a law firm before accepting a lump sum or proposed settlement. A lawyer will discuss the possibility of future medical treatment and the pros and cons of each decision with you.
Lump sum workers’ compensation benefits represent the end of negotiations with the insurance company. Claim management with your employer and the workers’ compensation insurance company can be time-consuming, preventing you from pursuing new employment or training opportunities.
With a lump sum offer, the injured employee receives immediate financial relief for medical bills, lost wages, and other debts. As such, concluding your workers’ comp case may be financially beneficial while offering closure.
However, depending on your circumstances, a lump sum settlement may not be in your best interest. Injured workers usually forfeit any future medical benefits related to this workplace injury when they agree to a settlement offer. As such, any future medical expenses would be your responsibility, which can get expensive.
If you don’t fully recover before accepting a settlement, your settlement may undervalue your needs, leaving you in financial trouble. Managing a large sum can also be challenging without proper financial planning.
Generally, an Illinois workers’ compensation settlement is tax-exempt, and you do not have to include it on your tax returns. However, this may not always be true, depending on how your lump sum settlement offer is structured. Addressing these issues with an attorney before signing any agreement is important.
The Workers’ Compensation Claim Process & Lump Sum Payments
To ensure you can file a workers’ compensation claim, you must report a work-related injury to your employer within 45 days. You’ll then file a claim with the Illinois Workers’ Compensation Commission (IWCC), which will investigate the incident and determine whether you’re eligible.
You should receive medical attention and follow all treatment plans during your recovery period. Not only will this ensure your overall well-being, but it will support your workers’ compensation claim. If your claim is successful, the insurance must compensate you for these medical bills.
You and the insurance provider will begin negotiations over your benefits, including how much the claim costs. You may choose weekly payments or a lump sum settlement. If you choose weekly payments, the insurance company must calculate expected future payments, while in a settlement, they must calculate how much would be a fair sum based on your current needs.
If you accept a lump sum settlement, the offer must be approved by the IWCC before anything is dispersed. This ensures that the worker understands their obligations and that the settlement is fair.
The Approval Process for Lump Sum Settlements
All lump sum agreements must be approved by the IWCC. The arbiter will review the settlement to ensure that it’s fair based on your potential needs, then review it with you to ensure you understand everything. After that, you’ll sign the agreement and release the insurance company from any further responsibility.
As the legal language can be complicated, a workers’ compensation attorney can be an important resource for injured workers, ensuring they are treated fairly.
How a Lawyer Can Help with Lump Sum Settlements
Under the Workers’ Compensation Act, employees can secure legal representation after a workplace injury. An attorney can negotiate with the insurance provider to ensure you receive the maximum disability benefits based on your needs.
Our Illinois workers’ compensation attorneys will calculate any future needs so that you will have financial security, especially if you cannot return to your previous position or have to take less lucrative employment. We’ll review your settlement terms and ensure they comply with all benefit laws. Additionally, if there are any disputes, we’ll represent you at IWCC hearings.
Lump Sum Settlement Financial Considerations
When deciding whether to take a lump sum, you should carefully consider your current and future needs. Consider whether the funds will be enough to care for you and any dependent family members until you are fully medically cleared or able to take different employment.
If an employee suffers a permanent total disability, accepting a lump sum may impact their eligibility for Social Security Disability Insurance (SSDI) even though a workers’ comp settlement is usually tax exempt.
It’s important to budget your settlement carefully to avoid running out of money, especially if you have a serious injury and will need a lengthy recovery period. Working with a financial advisor can ensure you’ll have enough to live on while you heal.
How Lump Sum Settlements Are Calculated
The IWCC does not have specific caps on lump sum settlement amounts, but any offer must be approved before any funds are dispersed. A work-related injury is separated into different categories, and this will determine how much you can receive.
For a settlement offer, you will typically have either a permanent partial disability (PPD), meaning you cannot work in the same capacity as before, or a permanent total disability (PTD), meaning you cannot work at all. For PPD, the current benefits rate is $1,907.79, though you may receive more if you have multiple dependents.
During negotiations, your attorney will add up all lost wages and medical expenses. They will also calculate future medical treatment needs and loss of future earning potential, which will influence how much you may receive. However, if there is any uncertainty about your expected medical improvement or work capacity, this could reduce how much you may receive.
When to Accept (or Decline) a Lump Sum Settlement
Some injured workers may choose to accept a lump sum offer if they have fully recovered and can easily predict future medical treatment costs. In some cases, the original sum is enough to achieve financial independence, or they know they will be able to secure a new job and will not need structured payments.
If the workers’ compensation case is delayed or disputed, a settlement may be an excellent way to pay off debts quickly and achieve closure. This is especially true if continuing disputes require additional defense, medical exams, and lengthy hearings.
However, some workers may find that a lump sum offer doesn’t meet their needs. If they have ongoing medical needs and are unsure how much they may cost, the offer may not reflect the full extent of their future treatments. A structured plan can be revisited if necessary with the help of a lawyer, making it a better option.
In some cases, accepting an offer could mean that you lose out on other benefits, like disability, that may better provide for your needs. Even though the settlement isn’t taxable, it can still be counted as a form of income when deciding whether you qualify for Social Security Disability Insurance, Medicaid, and other government programs.
If you expect you will need to depend on those services, it’s best to consult with a financial professional about how your settlement could impact your eligibility.
Alternatives to Lump Sum Settlements
Several other options are available if you believe a lump sum may not be in your best interest. You may continue to receive periodic benefits for lost wages and medical care, which can be a good option if you are still recovering and are not sure whether you’ll need additional procedures.
On the other hand, you could accept a partial settlement, which will cover lost earnings but allow you to claim ongoing medical benefits. This may be a good choice if you will be able to find new work but will still require additional treatments as you heal.
Maximizing Your Lump Sum Workers’ Compensation Settlement
Be sure to document all your expenses and losses throughout the recovery process, as this will help you calculate your compensation. Also, keep track of your time off work and ask your hospital and insurance provider to send you paper invoices for your records.
If you have any out-of-pocket expenses, such as therapy, medical equipment, or other needs, you should add these as well. Your attorney can work to have these covered in your agreement if at all possible.
Always speak to an attorney before you accept an initial agreement. If you have decided to take the offer, work with a lawyer who will ensure that the terms benefit you. While the IWCC will also review the agreement to ensure that it is fair and accurately reflects your needs, they may miss something, making it vital to have legal representation on your side.
It’s not uncommon for a worker to mismanage their funds after receiving a lump sum, leaving them with nothing to cover additional expenses or future needs. As such, you should consult with an experienced financial advisor when you receive the money. They can help you find ways to save for your future and avoid overspending.
Secure Expert Legal Representation!
A workplace accident isn’t just painful but expensive. Choosing how to receive disability benefits, whether as a lump sum or weekly benefits, can be a difficult choice that requires careful consideration. Working with an experienced attorney familiar with these cases ensures you make the best choice for your needs.
Rosenfeld Injury Lawyers is a nationally recognized law firm that helps injured workers in Illinois fight for their workers’ comp benefits. We’re highly familiar with the specifics of Illinois workers’ compensation and have negotiated fair sums from Illinois Workers’ Compensation Insurance companies statewide.
Our team will help you decide on the best course of action based on your injuries and future needs. As we work on a contingency fee basis, you owe us nothing unless we are able to win your case.
Call (888) 424-5757 or fill out our contact form to book a free consultation with a Chicago workers’ comp attorney.
References: [1] State of Illinois Workers’ Compensation Commission