Settlement Annuity vs. Municipal Bonds

Frequently Asked Question	Structured Settlement Annuity	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.	No – unless bonds are purchased and held for a period equal to life expectancy. Bond must be held to maturity to receive the face value, or par amount, of the bond. Even still, bonds may be subject to redemption by the issuer (see below).
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 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 municipalities 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. Under certain hardship situations and pursuant to court order, payments may be sold in whole or in part for cash at a discount.	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.