Many financial advisors and planners will jump at the opportunity to invest your settlement monies for the hope of greater returns and a lifetime of transaction costs to you. Investment people will compare the rate of return on a structured settlement annuity versus other investment products without taking taxes into account. However, income generated by investing large lump sum settlements generally result in high tax brackets. To compare apples with apples, you must use an Equivalent Taxable Yield (ETY). An ETY is the return needed on a taxable investment in order to match the tax-free return offered on a structured settlement. Therefore, one must obtain a taxable return at least 30% higher than the tax-free return of a structured settlement to offset the tax burden.
In addition to comparisons on rates of return, one must factor in “Safe Investing” for the future. Structured settlement annuities are payments made totally tax-free, with a highly rated life company, which separates this product from any other. The payments are guaranteed, providing an injured party monthly income with security. Other investment products are subject to market risk and will not provide consistent monthly income without transaction costs. Reinvestment risk also compounds the uncertainty of monthly income. Risk cannot be afforded by those who must pay medical bills, car payments, tuitions, mortgages and countless other expenses each month.
Structured settlements help individuals maintain a comfortable life without the opportunity to lose the settlement monies through investments or negligent spending often associated with lump sum payouts. Ups and downs in the stock market and changes in interest rates also have no effect on your stream of payments. Structured settlements give you peace of mind not only that you will receive payments regularly, but it relieves you from dealing with family and friends that want to tell you what to do with your money and who to give it to.
Accident victims are not traditional investors, but protectors of their principal. An investor is someone that continually places earned income into the market. Injured parties are not typical investors because anyone injured in an accident generally becomes unable to make sustainable income. Therefore, only one chance to invest will be available and loses cannot be offset with additional investment monies. Financial advisors are accustomed to dealing with wealthy individuals who are able to consistently contribute monies in excess of their cost of living to offset loses. Structured settlement brokers are experts in catering to the needs of injured individuals without investment knowledge who need guaranteed safe monthly income to live.