Financial Comparisons
Select a different option from the menu below to see how it compares to a Structured Settlement:
Structured Settlements versus Municipal Bonds
| Issue / Concern | Structured Settlement | Municipal Bonds |
|---|---|---|
| What types of securities/insurance products support the payments? | A fixed annuity contract issued by a life insurance company. | Debt instruments issued by state or local government entity to finance capital expenditures. |
| Can this option provide a stable, lifetime income? | Yes. Payments and distribution schedule are determined up front. Can provide a dependable, predictable income stream that you cannot outlive. | Since the coupon - or rate of payment - of the bonds is known in advance, investors may have a reliable income stream (see guarantee section below). Bond must be held to maturity to receive the face value, or par amount, of the bond. |
| Is there a guarantee with this option? | Yes. The annuity issuer guarantees payments, according to the terms of the structured settlement agreement. | Interest is guaranteed only for the initial investment period. If interest rates fall, fixed maturity dates may force investors to reinvest principal and any accrued interest at a time when interest rates are low, shrinking their income. Municipal bonds may have a "call" feature, allowing them to be redeemed prior to the stated maturity date. Bonds are usually called early when interest rates have fallen, effectively refunding investor principal at a time when reinvestment options reflect lower rates. |
| What are the costs and fees associated with this option? | No additional cost to annuitant. | Issued at face value. |
| Will this option keep pace with inflation? | A cost-of-living adjustment (COLA) feature is available that can help offset the effects of inflation. This option must be elected when the settlement is designed. | Does not provide a hedge against inflation. |
| What are the tax consequences? | Income provided by a qualified structured settlement is TAX-FREE, provided the damages received as periodic income (other than punitive damages) are the result of personal physical injuries or physical illness. | Generally, interest is exempt from federal income tax. May also be exempt from state and local taxes in state of issue. |
| Is this option affected by market fluctuations? | No. Benefit payments are determined and fixed at the time the annuity contract is issued. | Yes. Value will be affected by interest rate fluctuations and municipality's stated call options. |
| Can I make changes to this option after I select it? | No. The payment amount and schedule are fixed and may not be changed or accelerated. | Yes. If sold or redeemed prior to maturity, value is subject to market conditions. Investors may receive more or less than they paid, resulting in a potential capital gain or loss. |