The idea behind the annuity is that large amounts of funds can be liquidated into a series of payments over a period or for the rest of your life. That might be advantageous in some scenarios, but on the other hand, it might be disadvantageous to forego a lump-sum in favour of annuity payments. This is where the annuity buy-out concept is handy. Basically, it allows the annuitant the option to sell the annuity contract to the provider in exchange for a lump-sum payment. This feature makes the annuity buy-out an escape route from a structured settlement annuity.
• The need for annuity buyouts
When you wish to have greater control over your finances, it is considerably better to have a lump-sum than a trickling payment. Persons who receive settlements from injury settlements, malpractice lawsuits, or lottery winnings might receive distributions in this manner. This manner of distribution might seem restrictive to those who have suffered or want to have full and immediate control over the money due to them. Structured settlement annuities have a high opportunity cost. A common reason for buyouts is financial difficulty precipitated by a number of factors – whether illness, debt, or job loss, among other factors.
• How buyouts work
Determining the value of a buyout is for actuaries to do. A lot of it is contingent on the company. The size of the payment and the likely payment period are also major factors in determining the buyout value. Naturally, the buyout is often far less than the person would have received if they waited on the periodic payments of the structured settlement. The lump sum payment discharges the liability of the company from making further payment. It is supposed to be a win-win situation for both the annuitant and the annuity provider.
• Comparing lump sums versus payments
Determining whether it is beneficial to take a discounted lump sum over periodic payments require mathematical and situational analysis. It is advisable to consult a versed professional to help you understand the effect of this on your financial situation and tax liability.
Annuity buy-outs can occur at any stage in the annuitization period. It is most important to determine if the buyout is the best option for you and determine if you are getting the best value for it as well. If it suits your financial circumstances or ambitions, and is favourable compared to receiving periodic payments, then it provides a good exit route from structured settlement annuities.