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Sorry you haven't answered the two questions I asked.
Is this lump sum taxable?If it is taxable, is it taxed as one years income?
I am fully aware of how PHI monthly payments work and how and why they are taxed.
The insurance company are now trying to buy their way out of their liability to pay monthly payments by offering a one off lump sum in "full and final settlement of all liability under the claim". There is nothing in their offer that states the payment is an income.