Periodical Payments
Most settlements of personal injury claims are made in the form of a lump sum paid to the Claimant at the conclusion of their claim. The Court does have the power however to award Periodical Payment Orders (“PPO”) in personal injury claims where it is satisfied that the payments will be reasonably secure. When awarded, PPO will often be combined with a lump sum. The form of settlement for claims where our client has suffered serious injuries leading to substantial future losses requires careful consideration.
What is a PPO?
A PPO is a defined annual amount paid by the Defendant for a specified period or, depending upon the type of loss being compensated, for the remainder of the Claimant’s life. Claims for the costs of future care and case management are typically the subject of a PPO but other future losses, such as loss of earnings, Deputy fees, cost of equipment, for example could also be the subject of a PPO.
For some losses the PPO may increase at specified points in the future, such as when a Claimant may see an increase in their care needs and a resulting increase in their care costs, for example.
Whilst PPO may be the right choice for some Claimants, many insurers do not favour paying PPO and may only be prepared to make offers for a lump sum. Your lawyer will advise you about the merits of any offer.
Advantages of PPO
A lump sum award can place a Claimant at risk of running out of money in the future. Where losses will occur for the rest of the Claimant’s life and for crucial issues such as care, this would be highly problematic. The lump sum will be invested, ideally with the benefit of advice from an Independent Advisor but may not keep pace with inflation or provide a sufficient return to last for however long it is supposed to. This is particularly the case for lifelong losses where a Claimant outlives their life expectancy.
For lifelong PPO, if a Claimant were to outlive their life expectancy, then the PPO would continue to be paid until the Claimant died. This can be especially useful in cases where life expectancy may be impaired due to the injury or other factors. A lump sum would be based on a predicted life expectancy but may not bear any relation to how long the Claimant actually lives for.
The PPO would often be index-linked to rise with inflation which also minimises the future risks. The indexation for a care claim PPO can be specific to the inflation in carer pay for example. A Claimant with a PPO can therefore be satisfied that the PPO element of the claim will continue to be paid every year for the rest of their life and not have to worry about whether they are seeing a large enough return on the investment to outstrip inflation.
PPO are tax-free whereas the return on investing a lump sum would be taxed if it met the relevant thresholds.
Disadvantages of a PPO
There are some potential disadvantages to a PPO. A PPO means that the Claimant will need to prove to the insurer each year that they are still alive, which whilst a fairly minor undertaking does mean that there is still some ongoing involvement with the Defendant’s insurer.
Although any residual lump sum can be passed on to loved ones when a Claimant dies via their Estate, a PPO will end when the Claimant dies. If a Claimant were to die earlier than expected, they may receive less compensation than they would have done by way of a lump sum only award.
A lump sum can provide greater flexibility whilst a PPO would only be paid as agreed at the settlement of the claim. If a Claimant’s needs changed earlier than predicted the PPO would remain the same, whereas a Claimant with a lump sum only might be able to adjust their spending (although there will of course only be a fixed lump sum and any return on that investment to be used) to account for changes.
Expert advice
Whether PPO are suitable for your claim will be something that your lawyer will advise you about and expert evidence from an Independent Financial Advisor may be obtained in suitable cases. The expert will consider the likely settlement parameters and provide advice as to the pros and cons of PPO in a specific case considering the specific circumstances of that Claimant. The expert can also take into account any reduction or potential reduction for contributory negligence on the viability of a PPO.
Whatever method of settlement is right, we can ensure that you have access to financial advice before and after the conclusion of your claim to help you plan for your future beyond the claim.
