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Email this10:46 am
June 25, 2018
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If one where to receive a structured settlement plus a cash amount for an insurance settlement, is it best to invest the cash amount together with the structured amount or take the cash and invest in GIC's. Structured settlement pays no taxes however the money is locked in for many years (~20). I do not foresee needing the principal for the years the money is locked in.
8:38 pm
April 6, 2013
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I'm puzzled by the question. A structured settlement seems to be like an annuity. So, there is no locked-in principal like a GIC. Principal is actually gone on Day #1.
For example, if one accepts a structured settlement of $1,000/month tax free for remainder of life, instead of a one-time $250,000 lump sum settlement, there won't be a $250,000 principal payout at death after the final $1,000 monthly payment.
One also needs to be wary of some of these tax free options. The rate of return may be lower in recognition of its tax free nature. It is often better to receive a fully taxable 3% per annum than a tax free 1% per annum.
10:42 am
June 25, 2018
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In this case I have been given a choice of not touching the principal until the end of the term. The interest of 3% is paid out monthly. At the end of the term of either 10,15 or 20 years, the principal is then payed out as a lump sum.
I could have chosen the scenario you describe and receive larger monthly payments. My dilemma is what to do with the cash portion. Is this a good investment, where I need to lock in the principal for up to 20 years at 3%, or should I take the cash and invest in GICs for the next 20 years hoping rates go above 5%?
8:21 pm
April 6, 2013
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3% per annum tax free for the next five years is okay. Best five-year GIC right now is around 3½% per annum.
I don't know about 3% per annum tax free for the next 20 years though. I don't think it is a good idea for an actual person to lock in for 20 years like that, unless the money is for something in the future with an exact price tag that is known today.
Actual persons have expenses like food, housing expenses, and utilities that have gone up by more than 3% per annum.
I wouldn't want to be locked in at 3% should inflation ever climb above 3%.
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