Can I Sell My Annuity?
While an annuity can be a thoughtful addition to your retirement planning, we’re seeing an increasing number of dissatisfied annuity owners inquire about selling annuity payments. One of the most popular questions we get is, ‘Can i sell my annuity’?
First, you need to clarify whether the annuity is ‘transferable’. If it is transferable, then you can sell annuity payments. The transfer status can be determined by contacting your insurance company or by looking in your annuity documents (it is typically found in the “ownership section of your annuity contract from the issuing insurance company).
An increasingly popular option is selling annuity payments to a funding company in the secondary market. There are several annuity and structured settlement companies that will buy your annuity payments for a lump sum. The annuity buyout space has become increasingly competitive over the last few years, which is good news for the annuity seller.
Sell Annuity Payments
If you decide to sell annuity payments, get quotes from several different funding companies, to see how much you can get. The offers will vary so get them in writing (at least in an email). Also, speak with representatives from different annuity buyers and see which you feel comfortable doing business with.
The funding company will walk you through the process and help provide ancillary administrative and legal services. They should be communicating with the insurance company until the transfer of payment rights is complete. Unlike a structured settlement, selling an investment annuity should not require court approval.
Documents You Need to Sell Your Annuity
There are a number of documents needed when transferring payment rights. You will need to provide these to the funding company before you can receive a lump sum payment. In short, you need to provide two “proofs” to an annuity purchasing company- the proof of who you are (your identity) and proof of ownership over the payments you’re selling. Here is a list of documents you’ll likely need to provide:
- Drivers License
- Birth Certificate.
- Social Security Card
- Annuity Policy
- Tax Return
Structured Settlements Only
- Settlement and Release Agreement
- Qualified Assignment
Pertaining to other Interested Parties
- Marriage Certificate
- Divorce Decree
- Lien Release
- Bankruptcy Discharge
Some documents may also need to be notarized. While this list might seem lengthy, its unlikely you’ll need all of these-it depends on what types of annuities you are selling, retirement or structured settlement.
How Much Will I Get When I Sell Annuity Payments?
The lump sum offer will be a discount to the total future payments. This doesn’t mean you are getting ripped off-it’s just math. The time value of money means that a dollar today is worth more than a dollar to be received in the future.
Many annuity funding companies will offer between 60% and 85% of the value of the future aggregate payments, depending on the discount rate they apply to their present value calculations. The discount rates are typically 10-15%.
There are lots of factors that go into a quoted offer. These include the level of interest rates, the length until scheduled annuity payments are to be received and aggregate demand (how many people are trying to sell an annuity). Other variables such as the credit worthiness of the insurance company making the annuity payments and overall credit conditions will also factor in.
What if my annuity isn’t transferable?
If I try to sell my annuity but discover the annuity is not transferable, it probably can’t be sold on the secondary market. You can surrender the annuity back to the issuer to access your cash but that is certainly not ideal since you could incur surrender charges, tax liability and an additional penalty. There is a better option.
A penalty-free withdrawal amount may be granted once per calendar year by the annuity issuer (typically around 5% of the annuities value). The annuity withdrawal amount differs by insurer and is spelled out in the annuity contract. But remember, any amount withdrawn above the amount allowed by your insurance company will be subject to surrender charges, if applicable.
A penalty-free withdrawal amount may be granted once per calendar year by the annuity issuer (typically 5%-10% of the annuities value).
Free Look Period
If you realize the annuity you recently purchased isn’t right for you after all, you have another option besides selling the annuity or surrendering it. Whenever you buy an annuity, you have a grace period, known as the ‘free look’ provision. Within this time frame, if you feel this the annuity isn’t the right fit for your situation, you can “return”it for a full refund, without penalty.
Annuities often have at least a 10-day free look period but it may be longer for retirees (to make sure they haven’t been taken advantage of by pushy annuity salespeople). Check with your state’s Department of Insurance to see if you’re still within the free look period to sell your annuity back to the company.
For example, the state of Florida has a 21 day free look period for annuities. Within that time period, you can return your annuity for a full refund by mailing the policy back to the insurer via certified mail (return receipt requested). Free look periods apply to not just investment annuities but also life insurance policies if you are considering life settlements.
Even though your annuity was purchased with the best of intentions, such as a long-term investment for retirement, many owners realize they need their money that’s tied up in the annuity, now. Hefty fees, complexity and limited access to [your own] capital are common reasons to sell an annuity. So, in answer to your question, ‘Can I Sell my Annuity?’ the answer is probably YES.