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What Are My Options for Selling My Payments?
Once you decide how much money you need, you can opt to sell the entire value of the annuity, a portion of the total value for a lump sum, or a specific portion of a specific number of payments.
Option 1: Sell My Annuity in Its Entirety
Selling the full value of your annuity contract liquidates the asset. This eliminates all future income payments. However, you’ll have access to the full amount you agreed to with the buyer.
Option 2: Sell Some of My Future Annuity Payments in a Partial Sale
If you decide to sell only a portion of your payments, you’ll continue to receive periodic income and retain the tax benefits. In the event you need immediate cash, you can sell some payments in exchange for a lump sum. For example, you can sell years one through four of your annuity payments for a lump sum. After the four years have passed, periodic payments will resume.
Option 3: Sell a Dollar Amount of My Annuity Payments for a Lump Sum
Similar to a partial sale, a lump-sum sale allows the annuity owner to sell a portion of their annuity payments in exchange for a lump sum. This means they receive a specific dollar amount, which will be deducted from future annuity or structured settlement payments.
How Will I Benefit From Selling My Annuity?
Selling your annuity can be a suitable option for you to gain liquid cash and financial flexibility if your needs change.
Having direct access to your funds can allow you to pay off debt, put a down payment toward a new home purchase, replace a broken vehicle or cover any other immediate financial need. No matter your reason to sell, having the flexibility to use your money can help reduce your financial stress.
Selling all or some of your future annuity payments may also be less costly than taking a 401(k) loan or IRA withdrawal. Be sure to speak with your financial advisor to compare options for your cash flow.
How Much Will I Receive for Selling Annuity Payments?
Selling an annuity is a business deal. Factoring companies intend to profit from their purchases. This means you’ll be offered less than the total worth of your annuity.
Account for the Discount Rate
The difference between what your annuity is worth and what you’ll receive in cash is called a discount rate. According to various reports, the average discount rate ranges from 9 percent to 15 percent. And it’s not unheard of to encounter even higher percentages.
The discount is essentially the tradeoff for the ability to tap into your money immediately. It can also offset the purchasing company’s administrative costs and lost earnings.
Understand Present Value
The present value of your annuity is the total cash value of all future payments after factoring in the discount rate.
A lower discount rate means a higher present value, and vice versa. For example, you would keep more of your money if one purchasing company offers a 10 percent discount rate compared with 14 percent from another company.
- Total value of payments being sold
- Number of payments being sold
- Payment arrival dates
- Economic conditions
- Interest rates set by the Federal Reserve
- Fees and charges
Some factoring companies may charge higher discount rates and fees than others, resulting in the annuity owner receiving less of the contract’s value. For this reason, it’s important for you to be savvy about your sale and to consider several quotes.
Consult with a Professional Before You Accept an Offer
Although it may cost you a little bit of money, sound advice from your lawyer or financial planner may save you thousands of dollars during the selling process.
Your advisor can warn you about a low-ball offer or save you money in taxes.
They can also clear up confusion about the process or explain misleading terminology, such as the fictional “structured settlement loan” that some companies use when referring to the sale of payments.
Annuity Sales Versus Structured Settlement Sales
Annuity sales don’t need court approval. If you purchased or inherited an annuity, the selling is an agreement between you, the buyer and the insurance company. The whole process takes roughly four weeks. You can prepare for the sale with our answers to the frequently asked questions specific to the transaction.
In contrast to selling annuities purchased through insurance companies, selling the rights to structured settlement payments is a legal process that requires court approval.
Offering another layer of protection for sellers, Structured Settlement Protection Acts — the state and federal laws that safeguard the rights of settlement holders — govern the practices of purchasing companies.
Frequently Asked Questions About Selling Annuity Payments
The consequences of withdrawing from an annuity is based on whether the funds that purchased the annuity were taxed or not.
If you purchased your annuity with pre-tax funds, then you will only owe income tax on any earnings that you have received.
If you did not purchase your annuity with pre-tax funds, you will owe income tax on the full withdrawal. Additionally, if you make an early withdrawal before the age of 59 ½, you will face a 10 percent withdrawal fee and other penalties.
6 Cited Research Articles
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- Consumer Financial Protection Bureau. (2018, February 2). What should I know before giving up my monthly disability, personal injury or structured settlement payments in exchange for a one-time lump sum payment? Retrieved from https://www.consumerfinance.gov/ask-cfpb/what-should-i-know-before-giving-up-my-monthly-disability-personal-injury-or-structured-settlement-payments-in-exchange-for-a-one-time-lump-sum-payment-en-2025/
- Larson, A. (2018, May 7). The Structured Settlement. Retrieved from https://www.expertlaw.com/library/personal_injury/structured_settlement.html#selling-a-structured-settlement
- U.S. Senate. (1982, September 8). Federal Periodic Payment Settlement Act in 1982. Retrieved from https://www.finance.senate.gov/imo/media/doc/srpt97-6461.pdf
- U.S. Securities and Exchange Commission. (n.d.). Annuities: What Are Annuities? Retrieved from https://www.investor.gov/introduction-investing/investing-basics/investment-products/insurance-products/annuities
- U.S. Securities and Exchange Commission. (n.d.). Pension or settlement Income streams: What You need to Know Before Buying or selling Them. Retrieved from https://www.sec.gov/files/ib_income_streams.pdf
- Wood, R. (2019, June 26). How Lawsuit Structured Settlements Work. Retrieved from https://www.forbes.com/sites/robertwood/2019/06/26/how-lawsuit-structured-settlements-work/#6a930c3552e7