Annuities are financial instruments that pay income to an “annuitant” i.e. recipient who funds the annuity in earlier years. Annuities come in three types, fixed, variable and income and can be sold in two types of ways 1) pre-owned sale and 2) new annuities to clients. Annuity features may vary based on the insurance company managing the annuity and this can affect payment structure, fees, surcharges, terms of agreement etc. For this reason understanding the benefits and costs of selling an annuity is important to the successful sale of one. Before selling an annuity it may be beneficial to understand the reasons for the sale as well as the dynamics involved. This article will discuss the types of selling applicable to annuities.
Two kinds of annuity sales:
1. Client to buyer sales
In a client to buyer sale an annuity holder or annuitant essentially decides to sell an existing annuity income stream or cash out the value of annuities income stream. The annuity may not be salable if it is held within a retirement plan such as an IRA or Employer managed retirement account. A whole annuity does not have to be sold as partial sales are also possible. Annuities can be sold back either to Insurance companies or on secondary markets. The former is the faster approach but may incur significant surrender charges and less potential for profit.
To sell an annuity to a buyer other than the insurance company, one may wish to research companies known to purchase annuities second hand. The reasons some companies do this is because they can make a profit on the annuities present value before the future value to the client becomes payable. In other words, it is kind of like buying money at a discount for reinvestment and/or resale at a profit. A few of the companies that deal with this type of selling can be found in the sources listed in this article, specifically the article published by bankrate.com and setcap.com.
2. Insurance company to client
Another way to sell an annuity is to clients. Typically, insurance companies are experienced in this area and train their underwriters on both annuity plans and selling techniques. In recent years a controversy has arisen over the sale of annuities due to high commissions and aggressive selling techniques that have caused some companies to be sued. When being sold an annuity, it is advisable to understand all the fees, surcharges, maintenance costs, insurability, guarantee and details of the annuity. If the annuity provides a reasonable rate of return after the service costs are deducted, then it may be an advantageous tax deferred use of money that may also offer garnishment protection, guaranteed future payments and varying rates of returns.
Tips to consider when selling an annuity:
Before selling an annuity, it can be a good idea to think about all the factors, costs, implications and reasons behind the sale in addition to investigating different potential buyers of the annuity. Having a good understanding of the dynamics behind an annuity sale can help make the decision to retain or sell an annuity more sound. Below are a few tips that one may ponder before selling an annuity.
• Contact the Annuity Manager: The Insurance company may want to talk around selling, but they should have all the details available
• Contact a Settlement Company or Lawyer: If the insurance company refuses to sell the annuity, contact a third party such as Settlement Capital Corporation for additional assistance.
• Calculate the advantages of cashing out an annuity income stream
• Weigh The tax implications of the income from sale against potential return on income
• Contemplate purposes of selling an annuity to justify the rationality
• If reinvestment of the sale amount of the annuities present value yields a greater return than the future value of the annuity after fees and costs, selling may be a good idea.
The selling of annuities by annuity holders is a relatively new phenomenon and is a result of an evolving securities market in which cash and financial derivatives improve operational ability of financial institutions, cash flow and liquidity within financial markets. Annuity sales provide both individuals and financial institutions more financial options to improve financial management, efficiency of operations. The annuity sale process may not always be worthwhile therefore it is important to consider all the selling options and charges involved in the sale.
Sources:
1. http://www.investorwords.com/225/annuity.html
2. http://www.investorwords.com/223/annuitant.html
3. http://www.bankrate.com/brm/news/insurance/20070507_annuity_secondary_market_a1.asp
4. http://www.setcap.com/settlementcapital/aboutus.aspx?pt=aboutus
5. http://www.fool.com/personal-finance/retirement/2005/08/04/the-quotcriminalsquot-who-sell-annuities.aspx