Why Should I Sell My Annuity Payments
Whether you’re thinking of buying a house, starting a small business or paying student loans, using a portion of your future annuity or structured settlement payments can help you get back in control of your finances. When you face a serious need, accessing your annuity can be better than putting your life on hold.
Here are some common reasons people to sell their annuity payments:
- Effects of Inflation
- Investing in Yourself
- Retirement Funds
- Paying off debt
- Market Conditions
- Unexpected Life Events
- Buying or repairing a home
- Starting or investing in a business
- Funding a college education
- Investing (property, stocks, retirement fund)
- Liquidating a long-term investment, such as a seller-financed private mortgage note
- Unexpectedly unemployed
- Travelling or vacationing
- Sustaining an injury
- Funding an endowment or scholarship
- Assisting friends or family in financial need
- Providing funeral expenses
- Liquidating an inherited annuity
- Experiencing buyer’s remorse
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What Are My Options for Selling My Payments?
Depending on your reason for selling, you may need access to a specific amount of money at a specific time. There are several types of buyouts that can suit your financial needs. The three most common are entirety, lump sum and partial buyouts.
Partial buyouts, or selling a portion of your payments, still guarantees you’ll receive periodic income without losing the tax benefits. In the event you need immediate cash for a certain period of time, you can sell payments in exchange for a lump sum. For example, if you need to pay for a new car, you can sell years 1 – 4 of your annuity payments for a lump sum. After the four years have passed, periodic payments will resume.
The structured settlement will continue to carry those tax benefits and extend them to your heirs in case you die before collecting all your payments. In the event you need access to cash a second — or third — time around, you can buyout another portion of your remaining payments for a lump sum.
Choosing to sell your structured settlement for the full term of the contract liquidates your entire investment, ending any chance of periodic income payments in the future. However, you’ll have access to the lump-sum payoff.
Selling lump sums over time also provides immediate income in large increments. But this option still guarantees a steady flow of income from your structured settlement for the remainder of the contract, while still carrying the same tax benefits as before. For example, if you need $25,000 for a down payment on a home, you can sell that amount specifically instead of a certain number of payments that may not add up to the exact amount you need.
Similar to a partial sale, you as the annuity owner can opt to sell a portion of your annuity payments in exchange for a lump sum. Selling in lump sums allows you to be more specific on the amount you receive, which would then be deducted from your future payments. Visit our Payment Selling Options page for additional options, including information on the following topics:
How Much Will I Receive for My Payments?
Selling an annuity is a business deal. Companies that buy structured settlements (called factoring companies) intend to profit from their purchases. This means you’ll be offered less than the total worth of your annuity for a cash buyout. The discounted purchase amount is the price you are paying for the ability to tap into your money immediately.
The difference between what your annuity is worth and what you’ll receive in cash is a called a discount rate. Both the buyer and the seller have a role in negotiating this percentage. The average discount rate is 12%. There are many factors that can influence the amount of your discount rate, including:
- Total value of payments you are selling
- How many payments you are selling
- Dates the payments will arrive
- Current economic conditions
- Interest rates set by the Federal Reserve
- Fees and extra charges
In rare cases, you could receive as little as 50 percent of the value of your structured settlement. Most offers come in at 60 – 80 percent of the original value. For this reason, we advise people to hold on to as many future payments as they can. We also recommend shopping around for the best quote before choosing which company to work with.
Getting Financial Advice
Although it may cost you a little bit of money, sound advice from your lawyer or financial analyst may save you thousands of dollars during the selling process. Your advisors can warn you about a poor valuation of your structured settlement or save you money in taxes.
As part of the structured settlement selling process, you will have to be represented by an attorney before a judge or court approves the sale.
Often, your factoring company will provide you an attorney as part of process, but a high-quality company won’t discourage you from having your own lawyer.
For additional information on how to sell your annuity payments, payout options, or how to calculate payment amounts, our frequently asked questions page can be a useful resource during your financial journey.
Who Will Buy My Annuity?
Finding a buyer can be as simple as an internet search or asking your accountant for a recommendation. Although the process may be new to you, selling and buying annuities has been in existence since the 1970s. Many companies specialize in purchasing annuities and may be interested in purchasing yours. Regardless of how you find a buyer, all reputable factoring companies should:
- Staff helpful customer service representatives
- Avoid high-pressure sales tactics
- Offer a low discount rate
- Encourage the seller to talk with other buyers
- Encourage the seller to talk with their attorney or accountant
- Have positive reviews on review sites
- Employ experienced attorneys to facilitate the sale process
- Offer cash advances
- Let you read the paperwork before signing
How to Sell Structured Settlement Payments
The process of selling your structured settlement payments is fairly straightforward. Structured settlement companies complete more than 1,000 transactions a month.
- Make the Decision to Sell – If you need immediate access to cash and a buyout won’t hurt your financial future, it’s okay to make the decision to sell. Talk with your lawyer or accountant before making this decision to ensure it’s in your best interest.
- Contact Us – Our mission is to help answer your questions about annuities, including where to start the process. Our representatives are always ready to talk you through the annuity selling process and help you find a factoring company that works for you.
- Get a Free Quote – If you decide to work with our trusted partners, you can get a free, competitive quote on your structured settlement or annuity. We always recommend calling around to compare quotes so you’re sure you get the best price.
- Set a Court Date – After all paperwork is submitted, you’ll be able to schedule a court date to address your sale. You’ll need to present the reasons for selling your payments to a judge prior to receiving your buyout.
- Get a Cash Advance – While you wait for your court date, the factoring company you work with may be able to offer you cash up front, before the sale goes through.
- Cash in Your Hand – Once the court accepts the transfer, you should have access to your money within one or two days, although this can depend on the factoring company’s policy and the banks.
The Legal Process
Selling the rights to future annuity payments is a legal process. Annuity and structured settlement buyers must comply with state and federal laws — also known as Structured Settlement Protection Acts (SSPAs) — that safeguard your rights while providing rules covering the transfer of structured settlement payment rights to a third party.
Congress promotes and regulates settlement use. They passed the Federal Periodic Payment Settlement Act in 1982, ensuring that settlement revenue is not accompanied by local, state or federal taxes.
In addition to complying with state and federal regulations, selling structured settlement or annuity payments requires court approval. Once all paperwork has been completed and submitted, a judge is required to approve the transfer in order for the sale to be completed. The judge is meant to ensure your reasons for selling are legitimate and in the best interest of any dependents. They can also deny a sale if they believe you are receiving bad advice or a faulty bargain from a structured settlement buying company.
For more information on the how to sell your annuity and the legal implications, visit our pages on the following topics:
Can All Annuities Be Sold?
While most annuities — including lottery winnings and structured settlements — can be sold, the law stipulates a few annuities that are not eligible for sale including:
- Veterans’ benefits
- Social Security benefits
- 401(k) or pension benefits
- Worker’s compensation payments
- Divorce settlement payments
- Child support payments
How Long Does It Take to Receive Funds?
Selling your structured settlement payments is a legal process that can take anywhere from 45 – 60 days to complete. The timelines may vary based on individual state laws surrounding the sale.
Is There Any Way to Get Money Now?
Annuity.org’s partners offer cash advances that can get access to some of your funds as quickly as three business days after your purchase has been approved.
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If you need help deciding which factoring company to work with, are in immediate need of cash or still have questions about the annuity selling process, please call us. Our mission is to help you understand annuities and structured settlements so you can make the best financial choice for your family.