Legal Definitions - lump-sum payment

A lump-sum payment refers to a single, one-time payment of a total amount of money, rather than a series of smaller, periodic payments spread out over time. It represents the full and final settlement of an obligation or entitlement.

Here are some examples to illustrate this concept:

• Personal Injury Settlement: After a slip-and-fall accident, a person sues the property owner and reaches a settlement agreement for $75,000. Instead of receiving monthly payments over several years, the injured party agrees to accept the entire $75,000 in one single transaction.

  This is a lump-sum payment because the full amount of compensation for their injuries and damages is paid all at once, concluding the financial aspect of the settlement.

• Retirement Plan Withdrawal: An employee retires and chooses to withdraw their entire 401(k) balance of $300,000 in a single transaction, rather than opting for smaller, regular distributions or converting it into an annuity that pays out over time.

  By taking the full $300,000 at once, the retiree receives a lump-sum payment that settles their entire entitlement from the retirement account.

• Severance Package: When a company undergoes restructuring, an employee is laid off and offered a severance package equivalent to three months' salary, totaling $25,000, to be paid immediately upon their last day of employment.

  The employee receives the full $25,000 in a single payment, rather than receiving their salary in bi-weekly installments over the next three months, which exemplifies a lump-sum payment.