There are pros and cons to accepting lump-sum settlements. Depending on your circumstances, one may outweigh the other.
The pros of accepting a lump-sum settlement include taking advantage of liquidity and being able to choose how you spend your money all at once. With a lump-sum payout, you get all the money you need up front, so you don’t have to wait to start paying down debts or balance your finances.
If you accept a lump-sum payout, your settlement will most likely be tax-free, but you may be taxed on any investments you make with the money. Additionally, Section 104(a)(2) of the Internal Revenue Code states that any punitive damages paid may be taxed, which is something to keep in mind.
You won’t benefit from interest on a lump-sum payout, so what you receive in that payment will be the total sum. You can reinvest it, but what you receive will be the total of the award in full with no future payments.