Advantages And Disadvantages Of Structured Settlement Mutual Funds
Doug Smith

Defined Tag: Structured Settlement Mutual Funds.

In determining whether structured settlement mutual funds or equity mutual funds are best for you financially, research the pros and cons carefully. There are both advantages and disadvantages to both. Proper research can help you define what is best for your situation and life-long term financial security.

To create a periodic payment settlement, a fixed annuity contract is issued by a third-party (neutral party) life insurance company. The assets are invested in the insurance company's general account on behalf of the party at fault, to be paid periodically to the injured party.

With equity mutual funds, an investment company in charge of the fund allocates the assets from many investors into equity securities.

In court-awarded settlements, payments and distribution are determined at the beginning. This can provide a steady stream of dependable, predictable lifelong income.

Alternatively, equity funds have shown the best potential for long term financial growth. A drawback to choosing equity funds is the higher investment risk. Your income may decrease or even stop if the equity mutual fund is performing badly.

For structured payment plans, the annuity issuer guarantees payments to the injured party according to the court-appointed terms of the structured settlement agreement.

With mutual funds, however, your investment is not guaranteed! The financial returns from an equity mutual fund depend on the share prices and fluctuations of the stock or bond markets.

The income from a cash annuity is tax free if the settlement results from personal physical injuries or a physical illness.

Alternatively, with the equity funds option, taxes must be paid on payments received. This is because shares are sold to generate the income, and income from the sales of the mutual funds shares is taxable.

There are also other tax concerns with capital gains & losses from the sale of equity mutual funds.

Annuity recipients cannot make changes after the initial settlement. Payment amounts and schedules are fixed, so payment agreements cannot be changed or accelerated.

An advantage of equity mutual funds, however, is that you can withdraw your money and move from a poorly-performing fund to one that gives higher returns. This can be a big advantage if you need to raise emergency cash fast.

Of course there are both advantages and disadvantages to long-term payment settlements, and to stock mutual funds. To determine the financial option best for you, hire an experienced lawyer. Your lawyer can advise you whether structured settlement mutual funds will be beneficial for you.

This article is Copyright 2009 by Doug Smith. All Rights Reserved Worldwide. Unauthorized Duplication Prohibited. For Entertainment Purposes Only. Not Intended As Financial Advice. Consult Your Own Financial Professional.