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Back a few months ago I wrote an article about how to sell annuity payments in return for a lump sum amount of cash. However, in that article I didn’t really cover the reason why you defiantly don’t want to sell. So in this post I want to cover 6 reasons why you should never sell your annuity payments.

Why You Shouldn’t Sell

Someone told you to sell. The worst part about selling your annuity is the fact this type of industry is not very well regulated. In fact there are a lot people out there willing to take advantage of you and tell you anything in order get you to sell your annuity to them. The truth is these people are in business to make money and may be taking advantage of you more than you think.
Just because you just want to. Selling your annuity just because is not good enough. When you sell for a lump sum payment you will not be getting the full amount. You will only get a portion of the funds. This is what they call a discount, which is usually around 8% to 14% of the amount. For example, if you had $100,000 in the annuity and they gave you an 8% discount that means you would only keep $92,000 in a lump sum. You also have to consider the tax consequences of getting a lump sum this big. Doing this may cost big in taxes.
You think you have a lot of debt. Sometimes having a lot of debt may cause you to think that it would be better if you sold the annuity payments and would be able to clean the slate in a sense. However, there is one reason why you don’t want to do this. If your habits don’t change when you clean up your debt there is a chance you could wind right back up in debt except only now you aren’t getting any annuity payments to help you out.
You have no money. Having no money is another poor excuse to sell. In fact, if you have no money there may be bigger reason. To solve this issue look at how much money you are making and examine what you are spending money on. Take a month and track every single penny you spend. At the end of the month look at where you spent your money. The answer should be pretty obvious, if you find a lot of frivolous spending going on you know where the problem lies. Cashing in on your annuity will only make the situation worse in this case.
To invest in a business opportunity. Business opportunities are one thing but using your annuity cash to fund it is a different thing. Businesses come and go every day, who’s to say the business you are investing in could go belly up in short time. This can be a huge risk financial especially if you’re depending on this month to help you get through the month. Instead of selling for a lump sum payment consider setting aside a small portion of those funds this way if the business does go belly up you still have the payments coming in.
To lend to a friend or family member. This is probably the worst thing you could do with the money. Helping a family member or friend out is great but if they don’t pay you back there could be more at stake than the loss of your money. Friendships are the corner stone of life and lending them the money could drive a deep stake between you both. A good example I have is when I gave my brother $5000 to pay some debts off. It took me nearly 3 full years to get the money back, not mention the bitterness it caused between us.

Add Your Take On The Situation

So what is your take on the situation? When or when wouldn’t it be a good time to sell your annuity? Of all the reasons I’ve listed what would you add? If you’ve considered any of the above take time to think the situation over before you make any quick decisions. If you’re planning on selling your annuity make sure it’s for the right reasons because once you sell it’s gone forever.

Chris

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.

Chris

This post was recently featured in the carnival of personal finance by Well-Heeled Blog.

6 Reasons You Shouldn’t Sell Annuity Payments