These businesses are annuity issuers. They work with brokers, courts and individual buyers to create individually-tailored annuity contracts, providing consumers with savings and investment options. They accept premiums, invest some of the funds and over time provide annuitants with income through a series of payments.
Individuals or defendants pay premiums to insurance companies. The insurance company stores the money in tax-sheltered, interest-growing accounts. At a scheduled time, the owner of the account (which can be you or someone you assign to receive payments) gets cash in a lump sum or a stream of payments which, in some cases, lasts all the way through retirement.
These companies purchase future payments from annuitants in exchange for advancing cash. They work as a middleman, navigating between annuitants who need money now and companies scheduled to make payments in the future. This arena for selling payments—made up of annuity owners and buyers—is known as the secondary market.
When the owner of an annuity dies, remaining payments often go to a beneficiary or are transferred to a spouse. Every annuity contract has different rules written into it for how many payments, if any, are passed on and who the payments will go to. Riders can also be purchased to increase the amount inherited. Designating a beneficiary helps to avoid a lengthy probate process.