An annuity gives guaranteed future income streams to its owner but sometimes the annuitant needs to partially or fully sell the annuity to receive cash now.
Reasons to Sell Annuity Payments
There are lots of reasons or situations that may trigger the decision to sell the annuity. Sometimes the annuity holder may fall into economic turbulence or, they may simply want to reinvest the money into even more rewarding schemes. We are going to discuss some of the reasons below:
Losing a job: – Losing a job will stop income flow all of a sudden if the person doesn’t have other income streams. Finding a new job takes time. Selling annuity payments may help the owner to bridge the gap and save the family from the financial crisis.
Investing in a business: – Imagine your friend or, a neighbor has decided to sell their running and profitable business at a discounted price. It might be due to their decision to relocate or, inability to maintain the business, etc. It is a lucrative investment opportunity where some other competitors will jump into if they come to know. Before your friend makes an advertisement, you may want to offer him to buy the business. In such cases, you may fund your investment by selling the annuity.
Paying medical bills: – If you don’t have medical insurance or, any bill that is not covered by your insurance plan might be funded through selling your annuity. Indeed, it is one of the most common incidents that make people sell their annuities.
Paying off debt (student loans, credit card bills, etc.): – Some people sell part of their annuity to pay loans so that they can maintain the minimum credit score otherwise it will be difficult for them to get any sort of credit in near future.
Paying for school tuition: – Education is important and perhaps the most profitable investment on earth. If you are in need of paying tuition for your dependent or, for yourself, you may consider selling your annuity either partially or, fully.
Buying a new home: – Buying a new home requires a huge amount of money at a time. Most people can’t afford to pay the considerations out of their savings. Even if they try to arrange a mortgage, they need to make a minimum down payment. Therefore, interested parties might seek to sell their annuities to arrange the payments.
Buyer’s Remorse: – Making unnecessary purchases may also inspire some people to sell their annuities. If you want to sell your structured settlement, the court will consider whether selling the payments will really serve the best interest of the owner and his/her dependents.
Pros and Cons of Selling
Selling off the annuity means you are giving away your secure future income stream making yourself financially vulnerable for the future. Although it can help you address the emergency it comes at a cost of a negative impact on your financial future. Therefore, you need to consider its advantage and disadvantage before making such an important decision. We are going to point out some important pros and cons you should consider before selling your annuity payments.
Pros to selling your annuity include the following:
Instant Access to Cash – Selling annuity gives you instant access to the cash that would otherwise take years to come. Thus, you can meet any urgent payment like medical bills, buying property, and other incidental costs.
Reduced Debt – if you are about to destroy your credit score or, being charged with penalties due to failing to pay the dues, selling the annuity can help you get rid of your debts.
Grab a better option – If the annuitant comes across a better investment opportunity, he/she may grab it by selling their annuity. Thus, it enables them to reinvest the money into another opportunity that pays a higher return on the investment.
Cons to selling your annuity might include the following:
Reduced Future Income – Although the sale of your annuity payments will give you access to instant cash but it will do so at the expense of leaving the future fixed and steady income opportunity. Therefore, you need to weigh both. In case you sell your annuity to reinvest into a better deal, you should be fine.
Buyer’s Remorse – If you sell your annuity without an emergency, the money could be spent irresponsibly hurting your financial future in long term. Selling annuity enables you to access your cash now. Therefore, there is a risk of running out of money when you will really need it. The good news is that if you deal with a structured settlement, the court has made it mandatory to take permission before selling your payments.
No Full Price Payments – When you sell your annuity for instant cash, you never receive the full amount. There is transaction, withdrawal, legal, and consultancy fees involved. Thus, you lose part of your money in the process.