Sell annuity payments for cash? Things to consider.
An annuity is a type of insurance product where an insurance company will pay a guaranteed stream of future payments to beneficiaries named in the contract. Terms of annuity can be either monthly, quarterly, annually or even a lump sum payment at a specified date in the future. Depending on how the annuity was purchased by the insured, they could’ve been paid for with a single lump sum payment upfront or a set of periodic payments.
Annuities are meant to provide a steady regular income. Sometimes, for unforeseen reasons, the situation may occur that makes you contemplate selling your annuity payment for cash. You may have recently inherited a long-term annuity, or you could have won a lottery. Due to your individual circumstances, you might need cash now. If you have an annuity or structured settlement and you need cash now, selling annuity payments might be an option to consider. For some people, the prospect of buying a new home or starting a business as well is paying for education or some other debt requires access to the funds of your annuity or structured settlement. This is where annuitytrader.com can help.
Should I sell my annuity?
The decision to sell your annuity or structured settlement is not a decision that should be taken lightly. The financial advisor you speak with may tell you that selling your annuity is a good idea while another financial advisor you speak with may tell you that selling your annuity is not recommended. It all comes down to what your personal situation is and what is right for you and that situation. Before you sell your annuity you should ask yourself the following questions, which will help you to determine if selling your annuity or structured settlement is the right thing for your personal situation.
Why are you thinking about selling your annuity or structured settlement?
If you are considering selling your annuity or structured settlement because you need cash now, the reasons you sell should be very important to you. Keeping in mind the reason you want to sell your annuity or structured settlement considering the possible financial loss you will incur over the long term, this should be a well thought out decision. For your sale to finalize a judge must approve the transfer. In the past, the following situations are some of the reasons that have been used by many people as a reason for a judge to approve the sale of their annuity or structured settlement.
- Education – for many people getting a higher level of education is an investment in the future. Today more than ever, the cost of obtaining that education is higher than ever. From school tuition, room and board, books and transportation, the cost of obtaining schooling might be out of reach with the money you have on hand. Even if you add the periodic payments of your annuity or structured settlement you find that you simply do not have enough to cover your monthly expenses while you are in school. If you find yourself in this situation, then selling your annuity to cover your expenses while you are obtaining an education might be a good idea for you.
- Start a business – if you have decided to become an entrepreneur and you have a business idea that you want to pursue you might be low on cash to start the endeavor. Depending on your situation, you might be able to get the money you need from a bank or another financial institution by getting a loan. Instead of going into debt you might think it is a better idea to get access to the money you need by selling your annuity or structured settlement as a way to fund your business idea. Depending on the value of your annuity or structured settlement you might be able to get all the money you need to get your business up and running, or at least most of it.
- Real estate – buying a new house or fixing up your current residence can require large sums of cash. The down payment on a house alone can easily be 20% or more of the purchase value of the house. A leaky roof or faulty plumbing can become very expensive to fix very quickly. Investing in your place of residence can be a good idea in an atmosphere of rising real estate costs. Selling your annuity or structured settlement might be the right decision to keep and maintain the house of your dreams.
- Eliminate debt – a poor credit score caused by debt can become a burden on moving forward with many of life’s activities. If you want to get a home loan, an educational loan or even landing many jobs, having a good credit score is required. Many people find the best thing to do when deeply in debt it is to simply pay it off and start new. By selling your annuity or structured settlement you can get the lump sum of cash you need to eliminate your debt and satisfy creditors.
Why do some financial advisors recommend against selling your annuity or structured settlement?
The present value of an annuity is determined by using a discount rate to compute the value of the cash flows of the future into a monetary value of the money today. This present value will vary depending on the discount rate a.k.a. the rate of return. This discount rate will include both the expected inflation rate and a return that the buyer wants to make over the life of the annuity. Due to the discount rate, the amount of cash you receive today will not equal the amount of cash you would receive over the life of the annuity or structured settlement.
Because the amount of cash you will receive over the long-term is greater than the amount of cash you will receive today by selling some financial advisors will recommend against selling. As we have discussed in this article that all depends on your personal situation and what you expect to do with the money if you sell.