How to Sell Annuities: A Guide for Annuity Owners

How to Sell Annuities – Annuities are contracts that provide regular income payments in exchange for a lump sum or a series of payments. Annuities are often used as a retirement planning tool, as they can help you generate a steady stream of income for life or a specified period of time.

However, annuities are not for everyone, and you may find yourself in a situation where you need or want to sell your annuity payments for cash. In this article, we will explain what annuities are, how they work, and how you can sell them.

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What Are Annuities?

An annuity is a contract between you and an insurance company, where you pay a certain amount of money (either as a single premium or as periodic payments) and the insurance company agrees to pay you a certain amount of money (either as a lump sum or as periodic payments) in the future. The amount and frequency of the payments depend on the type and terms of the annuity contract.

Types of Annuities

There are different types of annuities, such as:

Fixed annuities

These annuities pay a fixed amount of money every month, quarter, year, or other interval. The payment amount is determined at the start of the contract and does not change over time. Fixed annuities are low-risk and predictable, but they may not keep up with inflation or your changing needs.

Variable annuities

These annuities pay a variable amount of money every month, quarter, year, or other interval. The payment amount depends on the performance of the underlying investments that the insurance company chooses for your annuity. Variable annuities are higher risk and higher reward, as they can offer higher returns or lower returns depending on market conditions.

Indexed annuities

These annuities pay a variable amount of money every month, quarter, year, or other interval. The payment amount depends on the performance of a specific index, such as the S&P 500 or the Consumer Price Index. Indexed annuities are designed to provide some protection against inflation and market volatility, but they may also have lower returns than variable annuities.

Immediate annuities

These annuities start paying income right away, usually within one year of purchase. You pay a single premium to the insurance company and receive regular payments for life or for a specified period of time. Immediate annuities are suitable for people who need immediate income and want to secure their retirement income.

Deferred annuities

These annuities start paying income at a later date, usually after several years or decades of purchase. You pay a single premium or a series of payments to the insurance company and let your money grow on a tax-deferred basis until you decide to start receiving payments. Deferred annuities are suitable for people who want to save for retirement and defer taxes on their earnings.

How Do Annuities Work?

Annuities work by transferring the risk of outliving your money from you to the insurance company. When you buy an annuity, you give up some control over your money in exchange for guaranteed income in the future. The insurance company invests your money and pays you according to the terms of the contract.

Annuities have two phases: the accumulation phase and the payout phase.

The accumulation phase is the period when you pay money into the annuity and your money grows on a tax-deferred basis. The length and terms of the accumulation phase depend on the type of annuity you buy. For example, if you buy a deferred annuity, you can choose how long you want to accumulate money before starting to receive payments. If you buy an immediate annuity, there is no accumulation phase, as you start receiving payments right away.
The payout phase is the period when you receive income from the annuity. The length and terms of the payout phase depend on the type of annuity you buy and the options you choose. For example, if you buy a fixed annuity, you will receive a fixed amount of money every month for life or for a specified period of time. If you buy a variable annuity, you will receive a variable amount of money every month based on the performance of your investments. You can also choose different payout options, such as:
- Life only: You receive payments for as long as you live, but no payments are made to your beneficiaries after your death.
- Life with period certain: You receive payments for as long as you live, but if you die within a certain period (such as 10 or 20 years), your beneficiaries will receive payments for the remaining period.
- Joint and survivor: You receive payments for as long as you live, and after your death, your spouse or another person will receive payments for as long as they live.
- Lump sum: You receive all your money in one payment at the end of the contract.

How to Sell Annuities?

If you own an annuity and you need or want to sell it, you have several options. You can sell your annuity in its entirety, in partial, or in a lump sum.

Selling in its entirety means you sell all your future payments to a third-party company, known as a factoring company, and receive a lump sum of cash. This option gives you the most cash upfront, but you lose all your future income and any benefits from the annuity contract.
Selling in partial means you sell some of your future payments to a factoring company and keep the rest. This option gives you some cash upfront and some income in the future, but you also reduce your future income and benefits from the annuity contract.
Selling in lump sum means you sell a specific amount of your future payments to a factoring company and receive a lump sum of cash. This option gives you a fixed amount of cash upfront and does not affect your future income and benefits from the annuity contract.

The process of selling an annuity involves the following steps:

How to Sell Annuities: Step 1

Do your research and compare quotes from different factoring companies. You can use online tools or brokers to find reputable and licensed companies that buy annuities. You should compare the offers, fees, discounts, and customer service of each company before making a decision.

How to Sell Annuities: Step 2

Choose the best offer and accept the quote. You will need to provide some information and documents to the factoring company, such as your annuity contract, identification, proof of address, and bank account details. You will also need to sign a contract with the factoring company that outlines the terms and conditions of the sale.

How to Sell Annuities: Step 3

Get approval from the insurance company and the court. Depending on the type of annuity you have, you may need to get approval from the insurance company that issued your annuity before selling it. You may also need to get approval from a judge who will review your case and determine if selling your annuity is in your best interest. This step can take several weeks or months, depending on your state laws and regulations.

How to Sell Annuities: Step 4

Receive your money. Once you get approval from the insurance company and the court, the factoring company will transfer the money to your bank account or send you a check. The amount of money you receive will depend on the discount rate that the factoring company applies to your future payments. The discount rate is the percentage that the factoring company deducts from your future payments to calculate the present value of your annuity. The higher the discount rate, the lower the amount of money you receive.

How to Sell Annuities; Step 5

Enjoy your money. You can use the money you receive from selling your annuity for any purpose you want, such as paying off debt, buying a house, starting a business, or investing in other opportunities. However, you should also be aware of the tax implications and potential drawbacks of selling your annuity.

What Are the Pros and Cons of Selling Annuities?

Selling an annuity can have some advantages and disadvantages, depending on your situation and goals. Here are some of them:

Pros:

You get access to a large amount of cash that you can use for any purpose.
You can get rid of an annuity that is not meeting your needs or expectations.
You can avoid paying fees or penalties for surrendering or withdrawing from your annuity contract.
You can diversify your portfolio and invest in other opportunities that may offer higher returns.

Cons:

You lose a guaranteed source of income for life or for a specified period of time.
You may receive less money than the total value of your future payments due to the discount rate applied by the factoring company.
You may have to pay taxes on the money you receive from selling your annuity, depending on how it was funded and how long you owned it.
You may lose some benefits or protections from your annuity contract, such as death benefits, inflation adjustments, or riders.

In conclusion, Annuities are contracts that provide regular income payments in exchange for a lump sum or a series of payments. Annuities are often used as a retirement planning tool, but they may not suit everyone’s needs or preferences. If you own an annuity and you need or want to sell it, you have several options to do so.

However, selling an annuity is not a decision to be taken lightly, as it has some pros and cons that you should consider carefully. Before selling your annuity, you should consult with a financial planner or advisor who can help you evaluate your situation and goals and guide you through the process.

How to Sell Annuities: Frequently Asked Questions (F&Qs)

How do I cash out my annuity?

Cashing out an annuity can be done in several ways:

Withdrawal: You can contact your insurance company and request a withdrawal form. You can choose to withdraw the entire amount or a partial amount. However, withdrawals may be subject to limits and surrender charges. Also, you may have to pay taxes and penalties depending on your age and the type of annuity.
Loan: You can borrow against the cash value of your annuity.
Return of Premium: You can get your premiums back through a return of premium.
Surrender: You can surrender the annuity for its cash value. However, surrendering your policy early might result in its cash value being reduced by fees.
Selling Annuity Payments: Instead of withdrawing money, you may be able to sell some or all of your annuity payments.

NOTE: cashing out an annuity has pros — access to immediate cash and potential tax advantages — but also cons including surrender charges, taxes, penalties, and loss of future income stream. Therefore, it’s recommended to consult a financial professional before making a decision.

Can you sell out of an annuity?

Yes, you can sell your annuity. This process involves selling your future annuity payments to a third party in exchange for a lump sum payment. The third party, often a financial institution, will then receive the future annuity payments.

However, it’s important to note that selling an annuity often comes with costs and potential penalties. The lump sum you receive will likely be less than the total of your future annuity payments. Additionally, there may be tax implications associated with selling an annuity.

Before deciding to sell your annuity, it’s recommended to consult with a financial advisor to understand all the implications and make sure it’s the best decision for your financial situation.

When should you sell an annuity?

Deciding when to sell an annuity depends on several factors:

Financial Need: You might consider selling your annuity if you have an immediate need for a large sum of money. For example, you might sell the first three years of your annuity payments to pay for major home repairs.
Age: There can be penalties for withdrawing money from an annuity before a certain age, typically 59 ½. If you’re younger than this, selling might result in a 10% penalty.
Surrender Period: Annuities often have a surrender period, typically six to eight years after you buy the annuity. If you sell or withdraw money too soon after your purchase, the insurance company will impose a surrender charge.
Type of Annuity: Some types of annuities, like immediate annuities or any annuitized contract, do not allow withdrawals until the annuitant’s death. You have to wait until retirement to cash out a deferred income annuity.

Can I sell my structured annuity?

Yes, you can sell your structured annuity. Here are the steps to do so:

Contact credible annuity buyers and get multiple quotes: Reach out to a factoring company or a buyer on the secondary market who will give you a lump sum of cash for your payments. You can sell a portion or all of your payments, depending on your financial needs.
Select the best quote and complete the application: Choose the quote that best suits your needs and complete the necessary paperwork.
Appear before a judge to get court approval (for structured settlements only): Any sale must be approved by a judge to ensure it is in your best interest or the best interest of your family. This step is required for structured settlements due to their legal status.
Receive your cash: Once the sale is approved, you will receive your money.