Selling Your Annuity Payments
You can sell your annuity payments for a lump sum of cash. In the event your financial needs change and an annuity is no longer meeting your needs, you can sell your current or future payments to an annuity factoring company. Annuities can be sold in portions or in entirety. If sold all at once, you’ll forfeit receiving all future periodic payments. However, if you sell a portion of your payments, you will receive a lump sum of cash upfront; and at a later time, you will be able to resume receiving periodic payments.
As long as your annuity contract is not the result of a lawsuit settlement, it is perfectly legal for you to sell your annuity without the approval of a judge. Selling structured settlements, on the other hand, requires court approval. The judge’s role in these transactions is to ensure that selling your settlement payments is in your best interest and will not put you or your family in financial jeopardy. Once the sale has been approved by the court, you and the buyer may move forward with the transaction.
Selling your annuity provides you with an influx of cash that can help to build a better quality of life for you and your family. A lump sum of cash offers you the freedom to alleviate debt, address emergencies and even travel. These are just a few reasons to sell your annuity payments.
It is best to discuss your options with a trusted, licensed financial advisor who is familiar with the annuity in question. Alternatives to selling annuity payments may include selling a whole life insurance policy or taking out a personal loan. However, it’s important to make sure you understand the financial implications of each.
In addition, if the annuity is in the accumulation phase, the firm may allow you to make small, penalty-free withdrawals. Experts also advise speaking to a tax consultant before making any decisions because the sale will have tax implications.
Selling your annuity contract in its entirety provides you with a large one-time lump sum. However, if you need immediate access to cash for a down payment on a house or for unexpected debt, you can choose to sell a portion of your payments.
A partial annuity sale allows you to sell a portion of your payments by a specific dollar amount or time period.
For example, you may decide to sell years three through five of a 20-year annuity. During those years, you will not receive your regularly scheduled payments. At the beginning of year six, periodic payments will resume.
You have the option to sell different types of annuities, including immediate annuities like single premium immediate annuities (SPIAs). Annuity factoring companies also purchase fixed annuities, including multi-year guaranteed annuities (MYGAs). They may also consider buying deferred annuities, whether they are still in the accumulation phase or have reached the annuitization stage.
They are less likely to purchase variable or fixed indexed annuities because the buyer has to take on more risk with them.
Not every type of annuity can be sold. Some examples of annuities that can’t be sold are payments from a divorce settlement, child support, 401(k) distributions and veteran’s benefits. Social Security and disability payments are also ineligible for sale.
In addition, many factoring companies will not purchase worker’s compensation payments, pensions, variable-indexed annuities or company buyouts.
Deciding whether to sell your annuity payments is a personal financial decision that requires careful consideration. You should evaluate your current financial needs, your annuity’s present value, the terms the annuity buyer offers you and your financial goals.
You also need to consider tax implications and any fees associated with selling your annuity payments.
Talking with a financial advisor or other professional may help you determine if selling your annuity payments is the right move for you.
With the exception of structured settlements, most annuities don’t make sense for minors. There is typically a 10% penalty for withdrawing money from an annuity before you turn 59½. There are also certain tax consequences. In addition, states may have rules that make it difficult for minors to have annuities.
Because of how structured settlements are meant to work, most states prohibit parents from withdrawing money or selling a child’s structured settlement funds. This is designed to ensure that the minor will be able to assume control over the annuity or settlement funds when they turn 18.
Typically, you will receive between 60% and 80% of the cash value of your annuity. Some companies may offer more or less. How much you receive will depend on the discount rate from the buyer; the lower the discount rate, the more you should receive.
Other factors that can affect how much your annuity is worth include:
• 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
You can use an online calculator to get an idea of how much your annuity is worth as a lump sum if you sell it today.
Need to Sell Your Annuity for Cash Immediately?
The Selling Process
Before proceeding with the decision to sell your annuity payments, it is highly recommended that you consult with a financial advisor to evaluate whether doing so is financially in your best interest.
Selling your annuity involves a number of steps:
• Research annuity buyers for the best service.
• Receive a quote.
• Consult with your financial planner.
• Complete and submit the required paperwork.
• Receive your money.
For a more in-depth view of the annuity selling process, read more on how to cash in on your annuity.
When selling your annuity payments, you’ll need a copy of your original annuity contract or structured settlement contract from the insurance company that issues your payments.
You’ll also need one to two forms of identification with your picture on it. These can typically include a driver’s license, state ID, birth certificate, Social Security card or passport.
Finally, you’ll need your settlement and release agreement. This is the document that you should have received when you accepted your structured settlement. It outlines the terms of your agreement and proves that your case was settled.
Typically, receiving a free quote takes only a few minutes; for more complex sales, it may take up to a day. Beginning the selling process is simple, and receiving a quote is the first step. Be sure to shop around with a few different annuity buyers for the best quote.
Selling your annuity provides you with a lump sum of cash. That leaves you free to put a down payment on a house, alleviate larger debt or pay college tuition.
It is also important to remember that selling your entire annuity does not mean you will receive the full value of the contract. Annuity buyers will purchase your annuity contract at a discounted rate that typically ranges between 9% and 18%. Be sure to discuss all your financial options with a lawyer or financial advisor prior to proceeding with the sale.
The process for selling an annuity generally takes about four weeks. This accounts for the time needed to process the paperwork from the insurance company – which must be completed before your payment is disbursed. If you need immediate cash but are still waiting for your annuity sale payout, some annuity buyers may offer immediate cash advances that can help with expenses.
If you change your mind about selling your annuity payments, you may have a narrow window to back out — but it will depend on your contract with the annuity buyer. Before committing to selling your annuity payments, you may want to talk to a financial advisor about whether it’s the right decision for you and your financial situation. Also, carefully review the terms of your sale with the annuity buyer.
There may be a time that selling your annuity payments for cash may make sense. Be aware of the possible drawbacks of selling your annuity payments, such as receiving only 60% to 80% of the value of the annuity.
Taxes & Fees
Selling your annuity payment does have tax implications. Any lump-sum payment you receive from an annuity purchaser will be treated as income, and you will owe taxes on the money in the year you receive it.
The primary fee associated with selling an annuity is the discount rate provided by the annuity buyer. In exchange for upfront cash, buyers charge a fee in order to profit from the transaction. The discount rate is determined largely by predicted future interest rates, in addition to other factors. The lower the rate, the more you as the seller will profit from your lump-sum payout. The higher the rate, the more you will stray away from your initial contract value. Be sure to consult with your financial advisor prior to making this transaction and consider shopping around for buyers that will provide the best bang for your buck.
Should you decide to sell your entire annuity contract, you are no longer responsible for paying monthly premiums. All responsibilities will be assumed by the new annuitant. However, if you decide to sell a portion of your annuity, you are still responsible for making payments on the contract.
Interested in Selling Annuity or Structured Settlement Payments?
Choosing an Annuity Buyer
Research ratings for the company, look up the company’s history and interview representatives of different annuity factoring companies you are considering.
Some questions to ask include:
• How long have you been in business?
• How long will the selling process take?
• What fees do you associate with the purchase of my annuity?
• What is your standard discount rate?
• When does my free quote expire?
• Will your attorneys take care of the court approval process?
• With which agencies are you certified and licensed?
You should consider several factors when choosing an annuity buyer to purchase your payments. These include looking for companies that:
• Are licensed and follow appropriate regulations
• Demonstrate complete familiarity with state laws
• Show financial stability with no history of bankruptcy
• Have a positive rating from the Better Business Bureau
• Make a competitive offer
• Offer a clear timeline for when you will receive money
• Offer you a certain amount of cash upfront
• Provide helpful customer service representatives and multiple ways to get in touch
• Give transparent disclosure of discount rates and fees
• Recommend you speak with a lawyer or accountant before making a decision
You can avoid annuity scams when selling your payments by looking for a few key signs. For example, the buyer is supposed to incur all lawyer, compliance and other fees. If you are quoted a price, you should receive a check for all that money with no fees deducted.
Be wary of companies promising to get your annuity sales through the courts faster than the normal time it takes (typically 45 to 90 days).
Be wary of companies offering “structured settlement loans.” There is no such thing. What they are really doing is buying all or part of your structured settlement. You will no longer receive your steady stream of payments.
You can find several companies that buy annuity payments online. You will have to provide information about your annuity, including the payment amount, the frequency of payments and the remaining term on the annuity or the portion of the term you wish to sell.
You’ll also have to provide personal information such as your name, address and contact details.
If the annuity buyer makes an offer, you will have to sign paperwork to transfer your annuity contract to the buyer.
As with any annuity buyer, you should carefully consider an online annuity buyer’s reputation, business reviews from actual customers and how transparent their fee structure is. Consider talking with a financial advisor or other professional before deciding to sell your annuity to a particular buyer.
A government annuity can mean many things. Social Security and disability are technically government annuities because they are fixed, regular payments. However, Social Security and disability checks cannot be sold.
A government annuity may also refer to a pension you receive after retiring from a local, state or federal government position. Many federal pensions can’t be sold, and state laws limit the sale of other government pensions. Check to see if selling a government pension is legal in your state.
It is possible to sell an inherited annuity in exchange for a lump sum of cash. While an annuity may have been a profitable financial option for someone else, regular annuity payments may not be the best decision for you. Inheriting an annuity also requires you to inherit the tax implications.
The process of selling your annuity can be summed up in five simple steps:
1. Research several annuity buyers. Look for the most trustworthy, transparent and reputable buyer.
2. Contact the buyer about buying your annuity payments.
3. Receive a quote — this can take as little as a few minutes for most annuities — and accept the offer after careful consideration.
4. Complete the paperwork. Be sure to review it or go over it with your financial advisor before signing.
5. Receive your money. This can take a few weeks to a few months, but some companies offer cash advances.
Choosing a financial advisor to provide professional insight can help you decide if selling your annuity payments is right for you. They can also answer your questions about the process and what to expect if you are considering selling your annuity.
A financial advisor should be certified through a professional credentialing body to assure that they have the professional knowledge and skills to provide you with trustworthy financial advice.
Editor Malori Malone contributed to this article.
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