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How does a structured settlement annuity compete in the current interest rate environment?
Structured settlement annuity yields remain competitive to other alternatives, even in cases where there is no lifetime payout. Even if you don't need lifetime income, a fixed income investment may be part of, or may have been recommended to be part of, your portfolio. So let's illustrate a structured settlement in which the payment flows are modeled after a bond held to maturity. Generally the issuer of a bond pays to the bondholder a yield until maturity and then, the bondholder receives back the amount invested. Listed below are yields on structure simulations of several types of 10, 15 and 20 year bonds and the corresponding yield on the bond that is being simulated. Once again, for this illustration, the bonds are assumed to be held to maturity.
- 10-year Simulation
| 10 Year U.S. Treasury |
4.25% taxable |
| 10 Year AAA tax-exempt municipal |
3.98% tax-exempt |
| Structured annuity from A+XV Best's rated company simulating same cash flow |
4.73% tax-free |
- 15- year Simulation
| 15 Year AAA tax-exempt municipal |
4.41% tax-exempt |
| Structured annuity from A+XV Best's rated company simulating same cash flow |
5.11% tax-free |
- 20 year Simulation
| 20 year US Treasury |
4.46% taxable |
| 20 year AAA tax-exempt municipal |
4.61% tax-exempt |
| Structured annuity from A+XV Best's rated company simulating same cash flow |
5.29% tax-free |
Lifetime structured annuity payments, which may incorporate rated age pricing, may have even higher yields than those shown above. Unlike bond payments, structured annuity payments can be customized. For example, while bond payments are traditionally paid on a semi-annual basis, the structured annuity payments could be paid monthly, quarterly, semi-annually, annually or even bi-weekly! They can also be immediate or deferred and have increasing payments
Sources:
For T-Bond rates: Federal Reserve Statistical Release H.15. For Municipal Bond rates: Bloomberg.com. Rates as of 11/27/2007 used for illustrative purposes only. Structured annuity rates, based on rates available during the week of 11/26/2007, using annuity issuer rated A+XV AM Best and AA Standard & Poors for illustrative purposes. Actual rates subject to change and should be custom quoted to reflect your specific needs.
Note: All references to "tax exempt" or "tax-free" in this illustration refer solely to the income tax treatment to taxpayers in the United States of America.
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