How to Sell Your Annuity
Annuities are contracts between you and an insurance company that allow you to invest funds over time. In return, annuity holders can obtain disbursement immediately or later in life, depending on their individual needs. Annuities provide steady streams of income once you are retired. These funds are tax-deferred and can be withdrawn after the age of 59.5.
However, there are certain occasions where an annuity owner may decide that selling an annuity is better than keeping it. If you find yourself in financial trouble, selling your annuity may be an option that can provide you with some much-needed cash flow. This said, any decision to sell an annuity or other financial product before it has fully matured should not be taken lightly. It is highly advisable to consult with a financial advisor before making any final decisions.
Descriptions of Annuity Buyouts
Your annuity can be sold in part, via a lump sum sale, or in its entirety. Review the descriptions of each buyout plan below so that you can be best informed of the decision that will be right for you.
- Partial – With a partial sale, you will have the ability to sell some of your annuity without giving up the tax benefits. And, you will have the ability to receive future income from the remaining portion of your annuity. In most financial hardship situations, a partial sale makes the most sense as you only need to sell for the amount that you need to gain for the short term. And, you can sell a portion of your annuities more than once, which can be reassuring in the event you run into another financial hardship down the road. As an example, you may choose to sell the first year of your annuity payment to help you pay off the balance on a car loan. You will then receive a check for that payment at the time of the partial annuity sale. Then, after that year has passed, your annuity checks will resume.
- Lump Sum – With a lump sum sale, you will be selling a portion of the overall value of your annuity. As an example, if you need $20,000 to make a home improvement, you can then sell $20,000 of your annuity’s value. You will continue to receive payments for the identified number of years that you would have received payments before the sale. However, your annual payments will be smaller due to the prior transaction.
- Entirety – In some cases, you may decide to sell the entire amount of your annuity payment. In this case, you will lose your entire investment and will not receive future payments, and you will lose the death benefit that you have designated for your beneficiaries.
How Much is Your Annuity Worth?
When you decide to sell your annuity, whether it be all or just a portion, the factoring company that will be managing the transaction will be trying to make as much profit as possible. When you sell your annuity, the difference between the value of that annuity and what you will inevitably receive is referred to as the discount rate. Your goal is to walk away with the lowest discount rate possible.
You can work with the factoring company to try to reduce that discount rate through negotiation. In most cases, the typical discount rate is 12%, but in some cases, it may be 50%. So as an example, if your annuity is valued at $50,000 and you are selling it in its entirety, you will likely receive an average of $44,000. However, you may be able to get it as low as $25,000.
There are a variety of factors that influence the discount rate that you will be offered by the applicable factoring company. Those factors may include:
- If you are selling the annuity as a partial sale, lump sum, or in its entirety
- The total quantity of payments that you will be selling and their cumulative value
- The current conditions of the economy
- Current interest rates, factoring fees, and other charges
Who Buys Annuities?
Factoring companies buy annuities. And, you have the option of selecting a factoring company. When doing so, be sure to look for the following as the best-structured settlement companies will have these qualities.
- A positive rating with the Better Business Bureau
- Little to no complaints lodged with the Attorney General’s Office
- Little to no negative feedback on Yelp (yes, factoring companies are often listed on Yelp)
- They will offer free quotes
- Their quotes will be provided to you in writing
- Their discount rates will be competitive
- They will have a reputation of providing fantastic customer service
- They will have no hidden fees
- They will have a customer support line with resources available to answer your questions promptly
- You will not be pressured by their account managers to make a fast decision
The Process to Sell Your Annuity
If you have decided that selling your annuity is the right thing for you, the process will look as follows.
- Conduct research to find a factoring company that you are comfortable with
- Obtain a quote from the factoring company
- Seek guidance from a law firm that specializes in the sale of financial products
- Complete and submit the proper paperwork
- Schedule a court date and present your case before a judge
- Receive your annuity payment
Making the Most of Your Annuity Sale
In addition to following the process mentioned above, there are things you can do to make your annuity sale go as smoothly as possible.
- Seek guidance from your financial advisor
- Sell the smallest number of payments possible. Do this by determining the amount you will need and correlating that with the number of payments that you will need to sell.
- Obtain quotes from more than one factoring company. Discount rates will vary, and remember that your goal is to obtain the lowest discount possible to maximize your profit.
The Advantages and Disadvantages of Selling Your Annuity
The decision to sell your annuity before maturity is not something that should be taken lightly. However, if you do decide to sell, it can help you to alleviate debt or work through a difficult financial situation. This said, be sure to consider the advantages and disadvantages of selling your annuity.
- Fast cash – If you need money fast, selling your annuity can help you get that cash in hand.
- Pay off debt – Sometimes in life, the unexpected happens. If this is the case in your situation, whether it be from an unexpected home repair, high medical expenses, or other, selling your annuity can help you cover those costs.
- Options – In some cases, it is good to know that you have options. With the sale of an annuity, you can elect a partial payment, a lump sum payment, or you can sell it in its entirety.
- Less income in the future – When you sell any portion of your annuity before the age of 59.5, it will result in less income for your later years. For this reason, you must think through your decision and seek the advice of your financial advisor.
- Payments sold at a discount – Remember that when you sell your annuity, regardless of the amount, you will not be receiving the full value. The factoring company that you select to manage the sale of your annuity will be sure to take their cut.