Receiving compensation after an accident at work can be a huge relief, finally bringing closure and providing the financial support necessary for recovery. But while there’s lots of help available when you set out to win it, you might find yourself short of good advice on how to spend it. Most people actually spend all their compensation money within just a few weeks, with vacations and automobiles among the most popular acquisitions. This can leave them in financial difficulties later on, especially if the accident is still taking its toll and further medical expenses have to be met. It may also mean that they end up paying more tax than necessary, as well as missing out on opportunities to earn interest on the money.
For those who want to make sure they get the most out of their compensation, it helps to understand a few simple principles.
What is compensation for?
Most compensation packages actually contain several elements. First are general damages, money given to make the victim feel better and compensate for the stress of the experience. Then there may be money to make up for lost earnings, and potentially, money to live on if working is not going to be an option in future due to the injuries sustained. There can also be money to cover things like travel expenses associated with the claims process, medical expenses (including the cost of treatment likely to be needed in the future), and adaptations to the victim’s home or car in order to accommodate a lasting disability caused by the accident.
When the money is spent, it’s important to consider these matters. Nobody will check up and demand to see proof of how it’s being used, but neglecting to take account of accrued debts or ongoing expenses could easily lead to problems.
Compensation payouts average around $3,500 but can vary considerably. For instance, attorneys Brown & Theis recently won $185,000 for a construction worker who suffered a severe shoulder injury due to a fall.
Tax and welfare
When winning compensation, people are sometimes told that they can choose whether to receive it in a lump sum or in installments. Some people will need it all straight away, for instance because they need to pay for major home adaptations. In many cases, however, it’s better to opt for installments as this minimizes the amount of tax that needs to be paid on the money.
Receiving compensation in installments is also a better idea for people in receipt of welfare payments, including those who have just had to apply for them because of a disability caused by their accidents. Having access to a large amount of money may mean that welfare payments are stopped or reduced, potentially leading to all the compensation being lost. This is a lot less likely to happen with installments.
Where the body paying compensation does not offer installments, one option is to engage with a solicitor who can set up a trust fund to achieve the same effect. Money held in trust doesn’t need to be inactive. It’s a good idea to seek independent financial advice (many banks offer this for free) so that it can be wisely invested and earn interest or dividends to increase the overall amount.