Simply put, an annuity denotes a financial instrument sold by insurance firms that enable you to save money, have it increase yearly without being taxed. The amount then attracts a continuous future payment on some structured schedule you have control over. However, the payments are subjected to tax, just like any other ordinary income. Contrary to an IRAs, an annuity provides no limit as to the amount of income you can put on it.
Basically, there exists two types of annuities; immediate and deferred annuities.
- An immediate annuity- in this contract, you start receiving payments as soon as you make your first investment. An example includes an immediate annuity bought as you approach the age of retirement.
- Deferred annuity- it’s an arrangement in which your money is invested over a period of time when you are ready to start making withdrawals, usually in retirement.
- Fixed/varied- immediate/deferred annuities can either be variable or fixed. This depends on the mode of payout; whether fixed sum or tied to the performance of the market or a combination of both.
Annuity Selling Options
Note that you have options in selling your recurring payments. Following are potential options at your disposal:
- Partial sale: Entails only selling a portion of your payments while continuing to receive payments. Partial sale for a period of time incurs no payments until the lapse of the sale period. Another option entails selling a portion of each and every payment, in which case you will still be entitled to continual payments, in proportion to the remaining portion after the sale.
- Entirety option: The options entail clearing out all your settlement or investment annuity at once through the sale of annuity payments through the entire term of the contract. This terminates your regular schedule of payments. However, you will be left with a certain lump sum to use when you deem necessary.
How to sell Annuity payments
The sale of an annuity begins by finding a potential buyer, whether an individual or company and speaking with one of their specialized representatives. This can be done online or through establishing a physical meeting with the company representative. Your representative will require some information about the annuity and will, therefore, ask you some questions. A good representative should try identifying your financial situation in order to figure out the most suitable way possible to help your meet your goals.
After understanding your distinct annuity goal, the company will develop a few options for you. This will be offered to you by your representative and may include an entire sale of your term payments or simply selling a part of each payment while leaving you with some regular payments.
However, the choice of the sale will be yours. After educating you about various option implications, you will select decided how you will sell your annuity payments. The company will then get together all the paperwork and send them to the insurance company managing your account. You will have to provide the company with a signed copy of the annuity agreement, together with a contract authorizing the company to seal the sale. Once the buying company receives all the documentation and acknowledgment from the annuity issuance company, it will directly deposit the cash into your account. This can be done electronically or by sending you a check.
Reasons to sell your annuity payment
Although the specific situation and reasons for selling annuity payments are unique and inherent to the holder, below is a highlight of common reasons for such a sale;
- Need for change in your investment/estate planning strategy
- When you realize that your initial reason for investing in annuity no longer exists or applies.
- Need for immediate cash for a home improvement or down payment
- When the annuity was of inherited and you wish to earn a cash lump sum rather than monthly payments
- Need for business investment
- Intending to invest in the stock market, real estate, or retirement funds
- Wish to acquire a lump sum to settle off a debt from a financial institution or credit card
- Obtain lump sum to cover medical bills
Despite the reason, your potential buyer will carefully analyze your financial situation and take you through the available options. All in all, ensure to meet your annuity selling goals.