We often read about lottery winners who win a gigantic sum of money and lose it all, such as the recently updated article by Business Insider and last year’s New York Post article.
Much of the time people fall victim to those who would prey on others, from con artists offering absurdly good investment scams to new friends to family members who play on a person’s sympathy. Much like lottery winners, there are a multitude of factors that work against an injury victim trying to manage a large settlement.
Recently the “Personal Injury Guide” by Justice Zerne P. Haning III (Ret.), William F. Flahavan and Daniel J. Kelly from the Rutter Group was updated and included comments on the dissipation risk of injury settlements. While focused on the practical aspects of settlements and litigation, the guide acknowledges that large cash settlements carry the additional risk of dissipation, unlike a structured settlement which protects against that. The guide states “Most personal injury victims who receive large lump-sum judgments or settlements are poorly equipped to manage and invest their recoveries wisely. Indeed, a substantial number of accident victims completely dissipate their recoveries soon after receipt. Installment settlements greatly lessen the risk of unwise investments and expenditures.”
When receiving a large lump sum, the injury victim encounters several psychological and environmental changes. The book “Lottery Winners, How They Won and How Winning Changed Their Lives” by Roy Kaplan discusses some of these dimensions, finding that people who received large lump sum winnings tended to purchase expensive luxury items, spend huge amounts of money on homes well beyond their needs and engage in a lifestyle very different from their pre-winning lifestyle. Winners were often besieged by “friends” and “relatives” looking for a handout or wanting to give them advice on how to spend and invest their money.
Psychologists and behavioral economists have studied the issue of spending lump sums for decades and are no closer to finding out the identifying the personality types and other traits that distinguish savers from spenders. It’s possible that the truth is that there isn’t a specific type of person, but rather a fundamental lack of understanding regarding injury victims. These individuals are not necessarily uneducated or irrational, but rather overwhelmed by their injuries and circumstances. They lack the necessary tools to foresee, plan, and manage their settlement effectively. With a structured settlement, they have someone in their corner who can help them do just that by providing them with guaranteed, tax-free income from some of the largest, most highly rated insurance companies in the world.
Suze Orman may have said it best during her speech at the National Structured Settlement Trade Association meeting in 2022. “If you are ever in an accident or situation where you get a large settlement, run, not walk, run, to the place where you can get a structured settlement.”
By John McCulloch | Structured Settlement Consultant, Vice Chairman
John holds an MBA from the University of Phoenix, a JD from Kaplan University, and a BA in Business from St. Martin’s College. In addition, he has completed graduate studies in Electronic Commerce at the University of San Diego and holds the following professional designations: CSSC, FLMI, WCLS, AIAA, ACS, and CMSS™, as well as an accounting certification from the Department of Defense. His formal insurance training includes casualty, property, fidelity and Workers’ Compensation claims, as well as Life and Health underwriting.
