It is important to note that this reform would not affect a claimant's ability to receive the full payment for any past or present damages, such as the medical bills or lost wages incurred through the date of the trial. The claimant will still receive these damages in a lump sum at the time of judgment or settlement. In many ways it is like an installment plan for a large purchase. The injured patient receives more of the award under the periodic payment reform, and the attorney less. Where a claimant receives a lump sum award that is not reduced to present value, the contingency fee paid to the claimant's attorney is much higher than it would be if the award was reduced to present value and structured as a periodic payment.
Periodic payments contribute to insurance premium stability.
It is easier for the insurer to calculate appropriate reserves if future damages are awarded in periodic payments. In less populated states, even one large verdict that must be paid in a lump sum can cause huge premium increases. The tax consequences of periodic payments are much more favorable to the plaintiff. While a lump sum payment itself is not taxable, when that sum is invested, the interest is taxable. Where a portion of the payment is invested, the taxable income is taxed at a lower rate than income from a larger, lump sum.