Cash Flows Investing Activities Cash Inflows Grants For Operating Activities A Structured Settlement Annuity: Comparatively Speaking

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A Structured Settlement Annuity: Comparatively Speaking

In previous articles we have seen the advantages of structured settlement annuities over lump sum payments. For some, this protects them from the temptation to spend most of their paycheck on unwise or unwise investments. Protection and incoming cash flow over the long term is what structured settlement annuities provide. However, not every person faced with a lump sum payment will necessarily be tempted to spend the money recklessly. Obviously, there are people who are savvy investors who think that they will be able to make more money from their own investments when they take a lump sum opportunity through a structured settlement annuity.

With that in mind, let’s take a look at how a structured settlement annuity compares to one of the most popular investment vehicles, the equity income mutual fund.

First, let’s see who issues annuity and mutual fund.

A structured settlement annuity is issued by a life insurance company. A stock mutual fund is issued by an investment company that pools the funds of several investors in equity securities.

Next, let’s look at the long-term ability of each to provide a lifetime income.

An annuity payment plan is created in advance and is a predictable and reliable source of income that cannot be outlived. A mutual fund can be a highly profitable investment. However, it can also be very volatile and unpredictable with market conditions and can actually lose you money and stop your earnings if the fund performs poorly.

What about a payout guarantee?

The annuity is guaranteed by the annuity issuer based on the terms of the structured settlement. A mutual fund is solely dependent on market activity and therefore cannot be guaranteed.

What about the costs?

There are no costs associated with the annuity. A mutual fund may be subject to a number of fees, such as sales load, annual management fee and marketing expenses. Even the lowest cost index funds have some costs associated with them.

What about keeping up with inflation?

A structured settlement annuity may have a cost of living adjustment built into the annuity at the time it is designed. An equity mutual fund can outperform inflation based on the performance of the underlying securities. However, it is difficult to predict what the return will be and remember that “past performance is not an indicator of future results.”

What about the dreaded T-word…Taxes??

A structured settlement annuity is tax-free as long as the money received is the result of a personal injury or illness. As the income is derived from equity mutual fund, taxes, capital gains, income etc. have to be paid.

What about flexibility?

The amount and schedule of structured settlement annuity payments may not be changed at any time. Conversely, money can move in and out of mutual funds. However, taxes, sales charges, etc. may apply to each transaction.

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