| 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. |