Annuities have been around since Roman times and really took off during the Great Depression. Now, as pension plans become less common, annuities are becoming popular again as a way to ensure a guaranteed income during retirement.
However, some of these annuitants are now selling off their annuities. This article looks at what an annuity actually is, when it might make financial sense to sell an annuity and how you can sell your guaranteed or investment annuity (or even your guaranteed or life contingent structured settlements) to New Leaf.
Strange as it may seem, sometimes, selling your annuity before it matures can even help you retire.
Here are the answers to four common questions about selling annuities:
What is an Annuity?
An annuity provides a way to manage your income so that you can receive regular payments at a future time. In 2014, the Treasury passed new regulations which allowed employees to use up to a quarter of their 401k or IRA allowance to purchase longevity income annuities (LIAs) and many workers took advantage.
Annuities are often misrepresented as investment vehicles. They are more accurately described as contractual income guarantees and come in many different shapes and sizes, depending on the annuitants goals. Annuities are designed to be customizable, providing lump sum payments or periodic monthly, quarterly or annual payments as preferred.
Unlike other insurance products, annuities are not funded indefinitely. Instead, they are structured in two phases. The annuitant pays premiums during the accumulation phase and then collects payments during the payout phase.
Just like a 401k or IRA, annuities are tax-deferred. However, it should be understood that they do not confer additional tax benefits so it is usually best to max out the other two accounts before paying for an annuity.
There are three main categories of annuity: fixed, variable and indexed. Fixed annuities give you principal protection. Unlike other options, you will receive payments at a guaranteed rate of return at the schedule agreed at the outset.
Variable annuities are higher risk as it is possible for your future payments to lose value if the funds (normally mutual funds) into which they are invested perform badly. However, it is possible to pay extra for minimum guaranteed payments by purchasing a rider. Indexed annuities are another way to guarantee minimum returns while making a bit extra. Since indexed annuities are linked to established exchanges (e.g. the S&P 500), it is likely that annuitants will enjoy some growth although rates of return are unlikely to be high.
If you are considering buying an annuity, it is important to understand that they are not suited to short-term investing. In fact, misconceptions about this are a common reason why some people decide to sell them on.
Why Would I Want to Sell my Annuity?
There are two main reasons for wanting to escape from an annuity contract. These are a change in financial circumstances and a misunderstanding about what an annuity is and does (and does not do!)
According to the U.S. News, annuities are “among the most commonly misunderstood and misused financial products.”
As already mentioned, one common misconception is that annuities provide a good rate of return. In reality, their value is more in the security they provide. Due to the numerous fees that annuities include, rates of return are usually disappointingly low. When annuitants realize this they are sometimes tempted to reinvest the money in something with higher growth potential (a business, a property, stocks and shares etc.). This can actually help them to retire earlier than they would have done as they replace low value income streams with potentially higher value ones.
It is possible to cash out your annuity early but sometimes people decide to sell their annuities to a company like New Leaf instead. Why would they do that?
The answer is often to do with surrender fees. As mentioned above, annuities are contracts designed as long-term investment vehicles so if you cash out early, you will almost certainly be hit with a hefty surrender fee. Surrender fees usually apply from between five and eight years following the purchase of the annuity. They are normally designed to be steep at the outset (often more than 10% of the remaining payments) and to reduce as time goes on.
However, when you transfer your rights to receive annuity payments by selling your annuity, those fees are not applicable. You will therefore need to compare the discount rate on offer from the buyer with your exposure to potential surrender fees to make the final decision of whether to cash out or sell.
How can I Sell my Annuity to New Leaf?
If you do decide to sell your annuity, our professional and experienced teams can give you all the support and advice you need. If you fill in our form, we can get a quote back to you in a couple of minutes. We promise not to hassle you as we understand that selling an annuity is a big decision and you will want to discuss the implications with your family and financial advisor.
If you decide to go ahead with New Leaf, we will then need to liaise with the issuing insurer. Every state has different regulations but we are used to dealing with insurance companies from all over the country.
You will be required to fill out various pieces of paperwork and provide ID so the more prompt you are with this, the sooner you will receive your money. Don’t worry; we can walk you through anything you are unsure of.
Can I Sell my Structured Settlement?
Yes you can if a judge agrees that a sale is in your best interests. New Leaf are experienced structured settlement buyers with thousands of transactions behind us.
For those who don’t know, a structured settlement is a special form of annuity, often awarded to claimants as a result of a personal injury suit or some other court case. We pay money for structured settlements that no longer serve the needs of the annuitant. We also offer a fast structured settlement advance guarantee to ensure sellers are not out of pocket while waiting for the funds to be released.
As with annuities, releasing future cash can help you to take advantage of high growth investment opportunities you may have otherwise missed. For example, you might be able to put a down payment on (or buy outright) a bargain investment property or invest in a business which goes on to thrive. In the best case scenario, the returns from these investments could replace your earned income and allow you to retire early.
With a structured settlement, the seller will usually have to attend court for a meeting with a judge who will check that you are not going to be worse off as a result of the deal.
If you know somebody who has a structured settlement in place and are frustrated about having to wait for future payments, make sure they know that they have the right to receive cash for structured settlement payments if that is in their best interests.
Whether you are interested in selling an annuity or a structured settlement, please contact New Leaf in the first instance. Our contact number is 1-800-517-7671