Tax-free investments are big.

The interesting ones are even bigger. Logically, tax-free should be No. 1. But the cruel fact is that with the exception of life insurance — you must die to get your tax-free reward — or municipal bonds (plagued by low return rates), there just isn’t much to talk about that is tax-free.

Tax-deferred is a different situation. That’s where the action is. The biggest tax-deferred “sandbox” is qualified plans.

Profit-sharing plans, 401(k) plans, IRAs of all sorts and others abound. Billions of dollars pour into these plans every year. Employer-sponsored plans are usually the tax weapon of choice. Non-employer plans, such as traditional and Roth IRAs, give every taxpayer an opportunity to play in this sandbox.

While IRAs have dollar limits, tax-deferred annuities have none. You can toss as many after-tax dollars as you like into annuities. Not one cent is deductible. But annuities are lower earners and result in severe penalties if withdrawn early. Simply put, there’s no liquidity.

So what’s the magnet that draws billions of dollars into this not-such-a-good-deal investment? Here’s the answer in one magic phrase: tax-deferred.

A word about annuity return rates:

• Fixed annuities are the most popular. They currently pay 3 percent to 3½ percent per year. Older annuities, purchased when interest rates were higher, paid more.

• The new darling is indexed annuities. Yield is pegged to some index, typically Standard & Poor’s, on an annual basis. Often in a loss year, indexed annuities guarantee a smaller yield, usually 1½ percent to 3 percent.

When the index rises to 4 percent, that is the percentage investors get. A large rise is capped at 6 percent to 8 percent. For example, at an increase of 14 percent, investors would receive only 7 percent.

What’s a tax-deferred investment that doesn’t have all the impediments of annuities and has a huge return rate without risk?

• The answer is senior settlements. The following example is the easiest way to explain.

Suppose Joe, 68, has a $400,000 life insurance policy with a cash surrender value of $50,000. Joe would like to stop his annual premium payments.

Instead of canceling the policy and taking the $50,000 from the insurance company, Joe sells his policy as a senior settlement and receives $120,000.

Joe’s a happy camper.

Investors bought Joe’s policy.

Senior settlements have been around for about 35 years. Their tax consequences are a delight. Tax liabilities on profits are completely deferred until the investor receives back the entire investment and profit.

There’s a public company that trades on the NASDAQ Stock Market offering senior settlements. The average rate of return is 16.36 percent per year and has been over 16 percent throughout the company’s 14-year history.

If your goal is to make a killing on your investments, senior settlements are not for you.

It should be noted that American International Group, the giant insurance company, and Warren Buffett’s Berkshire Hathaway invest in senior settlements.

But if an average return rate of more than 16 percent with no market risk is of interest to you, learn more about senior settlements. Just fax your name, address, phone numbers and estimated amount to invest to me at 417-9045.