Imagine this, you recently annuitized your annuity, this is the process were you hand over ownership of your annuity in exchange for them to pay you a payment to you for the rest of your life, and all of a sudden your spouse gets very sick and you need to get more money to pay for the medical bills.
How do you get the money? You sell it to a buyer who is willing to pay you a lump sum amount in return. In this article I’m going to be discussing how the process or selling your annuity works as well as the up’s and down’s to doing it. So if this is something you’ve been considering read on.
Why Sell My Annuity For A Lump Sum
There are all kinds of reasons you might want to do this. Here are a few reasons.
- To pay medical bills or other emergencies. Medical bills are expensive and not getting any cheaper and if you’re receiving annuity payments and they’re not covering your bills this may be an option for you.
- To Buy A House. Maybe you got an inheritance which was given to you and you need the money for a down payment on a new home.
- Lottery Winnings. A lot of times the lottery will annuitize your payments to you over a period of about 26 to 30 years so.
- Structured Settlements. If you’ve been hurt in a personal injury, malpractice, liability, or even a harassment case and have been awarded money it may take time till the payment kick in but with a structured settlement they work with you to get a lump sum payment.
How The Process Works
So now we know why your selling annuity payments, in this section I’m going to talk about how the process works.
How this process works is you contact a company that specializes in the process selling your annuity payments and what they will do is contact your insurance company and offer to buy your annuity. The buyer will usually buy the annuity at a discount. This means that you’ll basically be getting less than what it’s worth. The fee is usually around 8% to 14% and anything over 14% is basically a rip-off.
However you don’t have to do a full sale on the annuity if you don’t want to. You can also do a partial sale were you sell a fixed number of payments at a discount for a lump sum payment. You can also do a split sale were you sell a portion, usually half of the payments, for a lump sum payment.
Once the deal is done you will no longer have any more rights to the annuity if you do a full sale. If you do a partial or split sale you’ll still own the portion you are receiving payments from.
Benefits Of Selling Your Annuity
- Gives you immediate use to your money. If you need money now this is the best way to get it otherwise you will have to wait for the payments.
- You have control. With the insurance company paying you for your annuity you have little control over your payments, but if you take it as a lump sum you are in full control of your money.
- You don’t need good credit to do this. If you’re selling your annuity or structured settlement you don’t need to prove you have good credit to get a lump sum.
Reasons You Don’t Want To Do This
- Tax Issues. When doing this you always have to consider what affect this will have on your taxes. So consult your accountant before doing this.
- Annuities and Structured Settlements are sold at a discount. You will never get the full amount you originally put into the annuity. The key here is knowing how much of a discount you are going to have to take in order to get the lump sum payment.
- Not much regulation. As with securities companies and insurance companies there are lots of rules and regulations but with selling your annuity payments there are not as many laws to protect you from getting scammed by one of these companies.
Is This For You
When you sell annuity payment for a lump sum you need to make certain that this is for you. Here are a few questions you should ask yourself before you proceed
- Do you need the money?
- What are you going to use the money for?
- How will this benefit you in several years from now?
Knowing exactly why you need the money is a necessary step. You don’t want to sell your annuity just to pump up your bank accounts or worse to spend it on stuff you really don’t need. Is this for you? I can’t answer that for you but if the answer isn’t staring you in the face you probably don’t want to, but if it is take your time and research the possibilities and options you have before making any major decisions.
This post was recently featured in the carnival of personal finance by Well-Heeled Blog.