Owning an annuity offers many benefits. The most valuable benefit is that it allows you to accumulate a large amount of money during your working years to guarantee later payments for a period of time or for the rest of your life. Annuities are considered as both investment and insurance accounts. They are bought for the same purpose as other tax-deferred accounts like pension plans – putting aside money for retirement. In other cases, annuities are settlements made to the holder after an accident.
Financial experts advise that keeping an annuity untouched until its maturity is the best option. However, life changes may not always permit this. Unavoidable financial hardships such worrying debt levels, hospital bills, unexpected costly emergencies and so on sometimes push an annuity holder to a situation whereby selling annuity payments becomes an option. When you find yourself in such a situation, it’s imperative to understand a whole lot of issues that surround the sale of annuity payments. Some of these issues are explained below.
Get the difference between surrendering and selling annuity payments
Most seasoned financial professionals may understand the meanings of the terms “surrendering” and “selling” with regard to annuities. However, not many annuity holders who have just started thinking about selling their annuities might clearly know the difference between surrendering and selling. It’s important to first get clear on what you want.
Surrendering an annuity simply means breaking the contract. The annuity holder chooses to “surrender” annuity settlements and a fee is deducted from the proceedings. Annuity providers establish a surrender period. On average, the surrender period lasts 7 to 10 years in the U.S. Withdrawing any funds before this period ends attracts surrender charges that can go up to 15% or higher.
Selling an annuity involves selling annuity settlements or payments without paying any surrender fees or charges. You sell a set amount of the future annuity settlements to the buyer so that you get money now instead of later in the future. Of course, the transaction involves some calculations such a determining the Net Present Value (NPV) of your payments.
Annuity Payments Selling Options
- Partial: You can sell just a portion of your payments. There are two ways of selling annuity payments partially. One way is selling annuity payments for a specific period. For instance, you can sell payments for the first 5 years. You will not receive any payment during this period but recurring payments resume once the 5 years are over. The other way is selling a portion of each payment through the contract period so that you continue receiving regular but smaller payments.
- Selling annuity payments in entirety: This option lets you cash in the entire investment at once. You sell all your annuity payments that you’d have been paid through the full term of the contract. This implies that you will not get periodic income payments in future but you have a lump-sum of money that you can invest or use it in any desired way.
Useful Tips for Selling Annuity Payments
Selling annuities is a serious undertaking and one that should be approached cautiously. You are probably in debt, you have a searing hospital bill, or you need to upgrade your house or buy a new one. If you’ve come to a point where you are considering selling your annuity, you must be under some sought of pressure. It is always good to remember that it’s easy for one to make a wrong decision when under pressure. The following tips will help you as you go about the whole process:
- Don’t be hasty to sell. People have regretted not taking enough time to weigh options before calling an annuity agent and signing selling documents. A rush decision can make your current situation even worse. Take time to think about your long-term financial strategy and alternative options of raising the needed cash. Even when you are certain that you want to sell your annuity, think through the implications of taking any option on your financial status and general well-being.
- Have an annuity expert by your side. With a myriad of companies purporting to offer the best deal on the sale of annuity payments, you can be sure that choosing the best one is overwhelming, to say the least. Some will have hidden charges while others are downright unscrupulous. Having a professional at every step of the process will help you avoid pitfalls such as scams. The expert will also help you to get the best deal that will give you the highest payment in cash.
- Shop around and be ready to bargain. To get the best deal, you need to assess different buyers according to what they are offering. What charges are involved in the transaction? Do they offer you a guarantee? Most importantly, make sure that they are certified to perform the kind the transaction (for instance, an agent who has specialized in variable annuities may not be allowed to do fixed annuity transactions).
- Lastly, choose an annuity purchaser wisely. Look for a company that has a track record of helping customers cash in their annuities in the most efficient and convenient manner. The ideal company will not pester you into the deal. Rather, it will provide you with information and guidance throughout the process so that you control your decisions. Professionals in such a company will give you an honest evaluation of your situation and focus on your interests rather than just making profits.