Yearly payments instead of a lump sum

Most compensation is paid once, as a single sum. For a serious injury, that raises a question nobody wants to get wrong:

What happens if the money runs out?

Where a claim has to cover care and lost earnings for the next forty years, a lump sum has to be invested and made to last. If it is spent too quickly, or investments underperform, or you live longer than the calculation assumed, the money can run out while the need continues.

Periodical payments exist to remove that risk.

How they work

Instead of one payment, part of your compensation — usually the future losses, such as care costs and lost earnings — is paid as a fixed amount every year, for as long as you need it, often for life.

The key features:

• It cannot run out. The obligation continues regardless of how long you live.
• It is index-linked, so it keeps pace with rising costs rather than being eroded by inflation.
• It is secure, backed by the paying insurer.
• You do not have to invest it or manage a large fund.

Compensation for the injury itself, and losses you have already suffered, is normally still paid as a lump sum. It is usually a combination rather than one or the other.

The trade-off

A lump sum is flexible. You can adapt a home, buy a suitable vehicle, clear a mortgage, or set money aside. A periodical payment cannot generally be converted back into a lump sum later if your plans change.

So the real question is not which is better in the abstract. It is which fits the life the injury has left you with:

• A lump sum suits someone who needs significant capital up front and is well placed to manage it.
• Periodical payments suit someone facing decades of care costs, where certainty matters more than flexibility.
• A combination is common — capital for the adaptations you need now, and a secure income for the ongoing cost of care.

When it comes up

Realistically, only in large claims — catastrophic injury, serious brain or spinal injury, cases with lifelong care needs. In an ordinary claim it will not arise.

If it does apply to you, expect it to be discussed alongside expert evidence about your care needs and life expectancy, and to involve financial advice as well as legal advice. That is normal for a claim of that size and not a sign of complication.

Questions worth asking

If this is on the table, ask your solicitor:

• What proportion would be lump sum, and what proportion yearly?
• How is the yearly figure index-linked, and to what?
• What happens to it if my needs change significantly?
• What happens on my death — does anything pass to my family?
• Who is guaranteeing the payments, and how secure is that?

Frequently asked questions

Can I change my mind later?

Generally no. Once agreed, the structure is fixed, which is exactly why the decision deserves proper advice.

Is it taxed?

Periodical payments in personal injury settlements are not generally treated as taxable income. Confirm your own position with an accountant.

Does it affect means-tested benefits?

It can, in the same way other compensation can. Raise it early — see benefits and compensation and personal injury trusts.

What if the insurer stops paying?

The arrangement is structured so the obligation is secure. Ask specifically how yours is backed.

Is this available in Scotland?

Yes. It is not an English-only arrangement, though most online guidance describes the English position.

Sources

• Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019
• Scottish Courts and Tribunals Service

General information, not advice. Whether periodical payments suit your circumstances is a decision to take with your solicitor, and usually with independent financial advice.

Last reviewed: 6 September 2026 by the Personal Injury Claims Scotland editorial team