Insurance websites boast of easy-to-use annuity calculators ready to predict your financial future. Input your data, and a few clicks later you have a better idea of what your assets are worth. Sounds simple, right?
Not quite. When it comes to selling your annuity – selling the future payments you have coming to you – calculators can be fickle.
Why? Because they are too complex for a simple math equation. There are many variables that change constantly, such as interest rates and the future value of your money.
Most annuity calculators you find online are designed for people looking to purchase annuities or ones that predict the value of future payments. There are few secondary market calculators built for those who want to sell your annuity payments. That equation is much different.
Annuity calculators provide a ballpark figure for what to expect if you don’t sell payments. The exact total for getting a cash advance is far more difficult to obtain accurately.
Rather than typing in the digits from your annuity contract, learn the behind the scenes factors annuity buyers use. You will understand the numbers better once you can differentiate between the primary and secondary market and recognize the variables involved in selling payments.
Why Annuity Calculators Can Be Misleading
The world of annuities comes in two forms – the primary market and the secondary market.
The primary market is made up of businesses and brokers whose issue long-term annuity contracts to people. Financial advisors consider these safe investments that shielded from potentially turbulent market forces.
The secondary market consists of the buying and selling of primary annuities and structured settlements. In this market, annuity owners sell all or part of their future payments for immediate money.
Because these two markets have different goals, they function differently. Using a primary market annuity calculator when you investigate the price of your payments will give you incorrect information.
A primary market calculator – also known as a present value annuity calculator – provides data based on the amount of money expected from the annuity issuer. It uses numbers that are fixed in your contract and will not change.
Unfortunately, the total long-term dollar value won’t be the amount that an annuity payment purchaser will offer. It also won’t be an equal trade for the amount of cash the annuity issuer owes you.
One element will be the same for all annuities. Any annuity payment you sell for immediate cash comes at a discounted rate.
Companies pay out this decreased rate because they’re supplying the capital, taking on risk and accounting for the time they’ll wait to receive your payments. Because of a principle known as the time value of money, the dollar amount the company gets will not be worth as much later (in a few years) as the same sum is worth today. Put another way, $10,000 today is worth more than $10,000 tomorrow.
Estimating the Value of Your Annuity
Learning the true market value of your annuity begins with recognizing that secondary market buyers use a mixture of variables which change with every customer. It is this mix of variables that makes secondary-market calculators for sellers non-existent.
- Amount of money left in your annuity
- When annuity payments begin
- Frequency of annuity payments
- Portion of your annuity you wish to sell
- Fees and extra charges
- Current annuity market rates
- Specific buyer guidelines
You can see how these variables can change. One buyer’s fee structure can be different than another’s. The number of payments you want to sell can change based on the final number. (For instance, if your goal is to pull $30,000 out of your future payments, you might now have to sell as many months as you think. Or maybe you have to sell more. That, in turn, can influence other variables like fees and timing.)
Expect More from Your Payments
You can expect a better offer for payments under certain circumstances. Here are some trends that indicate you will get a higher value for the transaction.
The sooner a payment is owed to you, the more money you’ll get for that payment now. If you are cashing out now, payments scheduled to get to you within the next few years will be worth more than payments scheduled for 30 years from now. This directly affects the quote you’ll receive from any company bidding on your business.
In addition, the higher the rating of the company that issued your annuity, the more money you will can receive. The financial standing of the insurance company that sold your annuity gives us an idea of how much risk we are taking on by fronting you money. Moody’s and Standard & Poor’s are companies that provide this type of rating.
Higher demand for payments in the secondary market means you will receive a greater sum for your payments. This combined with fluctuating interest rates allows companies to provide competitive offers.
Getting an Accurate Quote
Our annuity and structured settlement calculator does a great job of estimating the fair market value for your contract. By providing data found in your annuity contract, you get immediate access to an accurate quote that incorporates the impact of time, changing interest rates and market value.
Insurance companies create complex annuity contracts, full of variables that make each situation unique. In some cases, the calculator will be unable to provide an estimate. For example, contracts with increasing payments or an interest rate adjustment cannot be evaluated by the calculator. Email or call our representatives to find the worth of these payments.
However, if you’re scheduled to receive simple annual payments and are eager to get a quote, this calculator is perfect for you. Unlike a present value calculator, you will discover how much cash you can actually expect to receive for selling your payments.