Reasons to Sell Annuity Payments
There are a number of reasons why people choose to sell their annuity payments. There may be a financial emergency, a change in income, or a new opportunity that requires upfront capital. Here are a few common causes for finding an annuity buyer:
- Paying off high-interest debt
- Funding education
- Saving for retirement
- Covering emergency expenses
- Paying for a large planned expense
- Investing
- Starting a business
These are frequent reasons for selling an annuity, but it’s important to consider your own long-term goals as well as your short-term goals first. Consult a financial professional to help you weigh your options.
Types of Annuities Eligible for Sale
There are many types of annuities that are able to be sold, including:
- Structured settlements: Usually awarded as a result of a personal injury lawsuit.
- Investment annuities: A purchased financial product from an insurance company offering guaranteed income over time.
- Lottery winnings: Accepting your winnings through an annuity usually results in a larger payout over time than a lump sum payment. The structure varies by state.
- Trust fund payments: If allowed in the trust agreement, a beneficiary may be able to sell their interest in a trust.
Annuity buyers may have different types of annuities they purchase. Since most buyers start the process with a consultation, it’s easy to figure out whether or not your annuity is eligible to sell.
Selling Process
Working with an annuity buyer is not an immediate process. Here are the typical steps to expect before the transaction is complete.
- Get quotes from multiple buyers: Annuity buyers all have different rates and processes. It’s important to choose one that doesn’t charge a high discount rate for your annuity and has a responsive customer support team. Talk with a financial advisor to consider how much of your annuity you want to sell and what the best payment structure would be for your specific situation.
- Compare your options: Once you’ve received a few different quotes, look at the funding time and the fees. Annuity buyers typically apply a discount rate when purchasing your annuity payments. This discount rate is a percentage that reflects the current value of your future annuity payments, adjusted for inflation and risk. Essentially, the discount rate determines how much less than the current value of the remaining annuity payments you will receive. Rates aren’t uniform, so it’s important to compare. Not only do they vary by annuity buyer, discount rates are also impacted by variables such as the current market, inflation rates, interest rates, your payment schedule, the number and amount of payments, and the rating of the insurance company.
- Gather documentation: Next you’ll need to fill out paperwork with the buyer and submit some supporting documentation. This includes copies of your ID and a copy of your annuity contract.
- Receive court approval: After choosing an annuity buyer, you’ll need to get the transaction court approved. The judge must make sure it’s in your financial best interest to sell the annuity and that it won’t cause you future harm. They also look at the terms of the sale to make sure it’s not predatory.
- Receive your funds: When the sale is court-approved, the annuity buyer processes the transaction to deliver your funds. The timing can vary from days to weeks.
Annuity Sale Options
There are several ways you can choose to structure the sale of your annuity. The best choice depends on your financial needs and how you plan to use the funds.
Full annuity sale: With this option, you sell the estimated value of your entire annuity. You won’t receive any future payments from the annuity.
Partial annuity sale: You sell a specific number of your future payments and don’t get paid during that time. After that, you start receiving your monthly payments again.
Portion of annuity payments: In this arrangement, you sell a fraction of your remaining payments in exchange for a lump sum. Your monthly payment amount is less based on the amount you sold.
Selecting the Right Buyer
It’s important to thoroughly research annuity buyers before you choose one. That way you feel confident that you’re receiving the most money and are working with a reputable buyer. Here are some factors to consider when comparing your options.
- Financial stability and industry experience: Find out how long the buyer has been in business and how their financial stability is rated.
- Price transparency: During your research and quote comparison process, ask your representative about additional costs that may be included. Besides the discount rate, are there any other fees that could lower your final payment amount?
- Discount rate: The lower the discount rate, the better. Discount rates typically range between 9% and 18% of your annuity’s present value. That’s a big range, so compare your options and don’t be afraid to negotiate to get a fair value for your future payments.
- Free quotes: You shouldn’t have to pay to get a quote on selling your annuity.
- Payment options: It’s better to have more options for selling your annuity. Consider buyers that offer both full and partial purchases of your annuity.
- Assistance with legal process: The best annuity buyers help set up the court hearing of the transaction. That’s less paperwork on your plate, and you still get that third-party review of the annuity sale before it’s finalized.
- Customer support: Knowledgeable staff to help answer questions and who have a genuine interest in helping you.
Pros and Cons of Selling Annuities
Before you start searching for annuity buyers, weigh the pros and cons the transaction will have on your short-term and long-term financial security.
Pros
- Access to lump sum of cash
- Potential for higher returns with better investments
- Potential to save on interest by paying off debt
Cons
- Less future financial stability
- Could have tax implications depending on the annuity
- Receive lower amount than the present value of the annuity
7 Questions to Ask an Annuity Buyer
1. What is the discount rate used to calculate the present value of my future payments? Understanding the discount rate is crucial. This percentage determines how much money you’ll receive from the annuity buyer in exchange for your future payments.
2. In addition to the discount rate, are there any fees or costs I will incur throughout this process? Who is responsible for these fees? Identify all potential costs in advance in order to avoid unexpected expenses that could reduce your payout.
3. What is the timeline for receiving my lump sum payment once I agree to sell my payments and receive court approval? Knowing when you will receive your funds is essential, especially if you need the money by a certain date.
4. What specific documents do I need to provide? Does your company assist with the paperwork and legal process, including scheduling a court date? The sale of structured settlements usually requires court approval. It’s important to know if the company will assist with this process and what you’re responsible for.
5. Has your company ever been involved in any legal disputes related to the purchase of structured settlements or annuities? This question can help you gauge the company’s reputation and reliability. You can fact check their response by checking complaints filed with the Better Business Bureau.
6. Do you offer multiple buying options, such as part of my annuity or a portion of my annuity payments? The more options you have, the better. It’s better to avoid companies that don’t offer partial annuity sales.
7. Do you offer a cooling-off period after I agree to sell my payments, during which I can cancel the deal without penalty? A cooling-off period allows you to reconsider your decision if you have second thoughts. Each state has its own rules, but may range between 10 and 30 days.
FAQs
What happens when you sell an annuity?
When you sell your annuity, it must first be approved by a judge. Once that happens, the buyer gives you a lump sum of the amount you agreed on. A discount rate is subtracted from the value to account for the costs and risk incurred by the buyer (such as inflation devaluing future annuity payments).
Your future payments adjust based on how much you sold. If you sell the entire annuity, you don’t receive any future payments. Or you may just receive a percentage or stop receiving payments for a certain period of time.
Is it hard to sell your annuity?
The process takes time to compare offers and get court approval. During that time, you must show that you have a clear financial plan for the funds and that they will benefit you in some way.
How much do you get when you sell an annuity?
Most annuity buyers charge a discount rate between 9% and 18%. That fee is subtracted from your annuity’s present value. So if the present value is $50,000, you would receive between $41,000 and $45,500.
Takeaways
Choosing an annuity buyer is not a decision to be made lightly. Instead, take the time to seek professional advice and compare several options so you feel confident in your decision.
Note: Company evaluations and ratings are solely the opinion of settle4cash.com and not subject to financial review.
Contact Us for a Free Quote Now!
