While annuities offer financial stability, circumstances may arise where accessing a lump sum of cash becomes necessary. In such cases, selling your annuity payments can be a viable option.
Key Facts About Selling Annuity Payments
- Selling all (or part) of an annuity can give you the cash to cover anything from an emergency or paying off debt to making an investment or a significant purchase.
- You have three options for selling an annuity: selling the entire annuity, selling some payments or selling a specific dollar amount of the annuity.
- The amount received for selling annuity payments depends on factors such as the discount rate, present value of the annuity, total value and number of payments being sold, economic conditions, and fees and charges.
- Seek advice from a lawyer or financial advisor before accepting an offer to help avoid lowball offers, tax implications and loss of value.
People who need cash to pay off debt, put a down payment toward a new home purchase, replace a broken vehicle or cover any other immediate financial need may consider selling all or part of their annuity.
Reasons to Consider Selling Your Annuity Payments
Individuals may choose to sell their annuity payments for various reasons, including:
- Debt Reduction: Paying off high-interest debts can alleviate financial strain and improve credit standing.
- Medical Expenses: Covering unexpected medical bills can prevent long-term financial hardship.
- Educational Costs: Funding education for yourself or a family member can be a valuable investment in the future.
- Home Purchase or Renovation: Securing funds for a down payment or home improvements can enhance your living situation.
Who Can Benefit from Selling Annuity Payments?
Individuals Facing Medical Emergencies
Those Experiencing Unexpected Job Loss
People In Need of Emergency Home Repairs
Those Undergoing Debt Consolidation
Options for Selling Annuity Payments
Once you know how much money you need to access from the annuity’s value, there are three options for selling: sell the annuity in its entirety, sell only some of the payments or sell a specific dollar amount of the annuity.
- Full Sale: Selling the entire annuity in exchange for a lump sum. This option provides the maximum immediate cash but forfeits all future payments.
- Partial Sale: Selling a portion of your future payments while retaining the remainder. This approach offers immediate funds while preserving some future income.
- Specific Dollar Amount: Selling a specific dollar amount of your annuity payments. This allows you to address immediate financial needs without significantly impacting your long-term financial plan.
Factors Influencing the Value of Your Annuity Sale
How much you will receive for selling your annuity payments depends on several factors. These include the discount rate and payment schedule.
Discount Rate
The discount rate is a key factor in determining what a buyer will pay for your annuity. It’s the difference between what your annuity is worth in the long run — and what you’ll receive in cash if you sell it.
Different annuity buyers set their own discount rates. The discount is essentially the tradeoff for the ability to tap into your money immediately. It also allows the purchasing company to turn a profit.
The lower the discount rate, the higher the present value of your annuity — and the more cash you’ll receive. For example, you would keep more of your money if a purchasing company offers a 10% discount rate than you would with a 14% discount rate from another company.
Several other factors will affect how much cash you will receive, including:
- The total value of payments being sold
- The number of payments being sold
- Payment arrival dates
- Current economic conditions
- Interest rates set by the Federal Reserve
- Additional fees and charges
Payment Schedule
The timing and amount of your remaining payments influence the present value of your annuity. Payments scheduled in the near future are typically more valuable.
You can calculate the present value of your annuity using this formula:
Formula legend:
- PVOA = Present value of an ordinary annuity
- PMT = Cash payment per period
- r = The annuity’s interest rate
- n = Number of payments from the annuity
Some factoring companies may charge higher discount rates and fees than others, resulting in the annuity owner receiving less of the contract’s value. It’s important for you to consider several quotes to gather more options before selling.
Steps to Sell Your Annuity Payments
Step 1: Do Your Homework and Research Buyers
Don’t consider a factoring company just because they have a big name. There are many online tools to help you verify if a buying company is trustworthy.
Resources for Researching Annuity and Structured Settlement Buyers
- Check the company’s financial strength ratings from credit rating agencies, like AM Best or Fitch Ratings. A company’s financial strength indicates its ability to pay claims made by policyholders. It’s generally best to consider companies with a rating of A- or higher.
- Confirm the company’s complaint index score. The NAIC publishes company complaint index scores annually, which indicate if the company has a high or low level of complaints. Look for a company that has a complaint index score of one or lower, which indicates a minimal number of complaints.
- Look at online reviews and ratings from the Better Business Bureau. Look for a company with positive reviews. The Better Business Bureau helps facilitate the resolution of customer complaints, so it can give you a better idea of the company’s conflict management.
You can also ask for advice from an accountant or financial planner. Do all that you can to find a reputable buyer available to answer your questions.
What Our Customers Say
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“I called them with only the most guarded hopes. Because every conversation that I had had with my annuity company and other funding companies always concluded with ‘sorry I can’t do anything for you.’ ” I was thrilled to discover that there was (an) organization that retained a sense of human caring and human involvement.”David Gaynes
Need to Sell Your Annuity for Cash Immediately?
Step 2: Consult a Representative and Get a Free Quote
After you’ve identified several buyers, start making phone calls. Speak with customer service representatives who explain your selling options in an easy-to-understand manner. Ask each company for a free quote.
Other Questions To Ask After Receiving Your Quote:
- Can I change my mind about selling my annuity payments?
- Are there any additional fees with selling my payments?
- How long will the selling process take?
- What documents do I need if I choose to sell my future payments with you?
- When does my free quote expire?
Talk to at least two purchasers and compare quotes. Verify what they tell you with your own research.
You can also contact Annuity.org partners to find out how much your structured settlement or annuity is worth. We can recommend reputable buyers.
At the end of the day, don’t let anyone press
Step 3: Consider and Accept an Offer
Evaluate your offer, compare it to others and accept the best one.
According to the National Association of Settlement Purchasers, you can expect a discount rate between 9% to 18%. Your discount rate is determined by several factors, such as the length of your annuity and the amount you want to sell. A company’s discount rate guarantees you’ll be receiving less than if you kept your original scheduled payments, so make sure you get the lowest rate possible.
The lower the discount rate, the more you’ll benefit since your payments will retain a greater cash value. The higher the discount rate, the more the buyer will benefit.
If you’re not pleased by your discount rate, you can always negotiate to lower it.
If you’re cashing out a commercial annuity, selling some payments to a factoring company on the secondary market could be a much better deal than withdrawing money. Withdrawing funds can cost you surrender charges and tax penalties, depending on your age and how long you’ve had the annuity.
Step 4: Complete Paperwork
The buyer and your insurance company will process the paperwork for the sale of a commercial annuity. Once you’ve completed the documentation to transfer the ownership and payee designation to the buyer, the rest of the process takes roughly four weeks.
If you fail to provide the proper documentation, the process could take longer.
While the required documents could vary depending on the company you choose, you’ll generally need the following documents to sell your payments:
- Two forms of identification
- A completed application
- A copy of your original structured settlement or annuity contract
- A release agreement
Always keep records of all transactions in a secure, easily accessible location.
Step 5: Get Approved and Receive Your Money
The insurance company that issued the annuity contract must approve the sale of a commercial annuity. As long as the sale is legitimate and the buyer is reputable, the insurer will approve your sale, and you will get your money as quickly as the law allows.
Some states require sellers to receive a professional assessment of the sale by a third party, while others allow a narrow window when you can change your mind about the sale. You may want to check with your lawyer or financial advisor about the laws in your state before finalizing the sale.
Court Approval: The Extra Step for Selling Structured Settlement Payments
Structured settlement sales require an additional step. A judge must review your sale and speak to you to determine whether the sale is in your best interest.
The court approval process can take anywhere between 30 to 180 days, according to the National Association of Settlement Purchasers.
Once you return signed documents, a local attorney — one you hire or one appointed by the factoring company — files paperwork with the court to schedule a hearing.
Each state has its own laws and regulations in accordance with the Structured Settlement Protection Acts. These laws exist to protect consumers from unethical factoring companies in the secondary market.
You’ll need to present your case in front of a judge. Be prepared to explain the need for your money and to show that you are not putting yourself or your family in financial jeopardy.
The judge will take your reasoning into account when evaluating the case, as well as factors like the reputation of the purchasing company, the discount rate, your employment status and any previous payment transactions.
If the court approves, the issuing company will receive the transfer order. Your structured settlement purchaser will then send you a lump-sum payment.
Selling Other Monthly Payment Streams
You can sell other financial products besides annuities. These include life insurance or viatical settlements and mortgage or business notes. Life insurance policyholders can sell their policies in a life settlement or viatical settlement.
In each case, you sell periodic payments for a lump sum of cash.
Life Settlements
You can sell your life insurance policy — known as a life settlement — directly to a company or use a broker who earns a commission from the buyer.
The buyer becomes the new policy owner and pays the premiums. They receive the death benefit when the insured person passes away.
Reasons to sell your policy may include changing financial needs, reducing premiums, or accessing a lump sum for expenses.
Mortgage Notes
Lenders use mortgage notes to enforce the repayment of a mortgage loan. The note pledges the property as collateral, allowing the lender to repossess it if the loan isn’t repaid.
You can sell a mortgage note to a new owner or a mortgage note brokerage. You can sell the entire note for a one-time cash payout or sell a portion, either as a percentage of its value or a specific dollar amount.
Business Notes
Business owners use business notes as alternative financing when selling their businesses. The note specifies the assets, sale price and repayment terms for the buyer.
Similarly to mortgage notes, buyers make installment payments according to the note’s terms.
You can sell all or part of a business note you own to a third-party business note buyer or broker. You won’t receive the note’s full value because the buyer imposes a discount rate to cover expenses and generate profit.
Frequently Asked Questions About Selling Annuity Payments
You can start by researching annuity purchasers who can buy all or some of your remaining payments. Next, obtain and compare quotes. Then submit your paperwork to initiate the cash-out process.
It can take up to four weeks to withdraw money from an annuity. It depends on how quickly the insurance company with which you have the annuity and the factoring company you are selling it to can complete the process.
If you cash out your qualified annuity — one funded with pre-tax dollars — before you turn 59½, you will have to pay a 10% penalty tax. If you withdraw money from a non-qualified annuity — funded with money you’ve already paid income tax on — the 10% penalty applies only to the earnings, but not on the principle. You may also face additional taxes, penalties and surrender fees.
You can withdraw a lump sum or a single payment from an annuity in most cases. But you may have to pay a penalty depending on the type of annuity it is. A lump sum may also be less than the value of the annuity over time.
Casinos and lotteries typically pay out large jackpots through annuities. They can usually be sold for a lump sum. Some states may not allow the sale of lottery annuities. You should check with your state’s lottery commission. You will receive less than the face value of the annuity and may be subject to additional taxes if you sell a casino annuity or lottery annuity payment.
Writer Jerry Brown contributed to this article.
