Lump Sum Annuity
What is a Lump Sum Annuity?
A lump sum annuity is a retirement savings plan sold by financial institutions or insurance companies. Within an annuity plan, the purchaser or annuitant pays an investment sum to the insurance company which subsequently becomes structured settlement companies payment to the annuitant.
An annuity is thought of as an excellent insurance product for maintaining one’s quality of life after retiring. When compared to other retirement saving plans, annuities offer better benefits such as a more flexible premium payment option, no limit to the contribution amount, higher rates of interest earnings, tax advantages plus a regular income for the life of the annuity. An annuity is also considered to be a great option for providing for a child's educational requirements.
How does an Annuity Work
In simple terms annuities are financial contracts made between a financial institution and the annuitant. Normally the companies selling or acting as the issuer of the annuities are insurance companies. The person purchasing an annuity is referred to as the buyer. In a lump sum annuity the annuitant makes a lump sum payment to the insurance company and under the terms of the annuity agreement the insurance company will make periodic payments to the annuitant over a specified period of time.
An annuity plan comes in two parts
These two parts are the accumulation and distribution phases.
The accumulation phase naturally is when the annuitant makes their deposit which will either be in the form of a lump sum payment or through regular payments to the insurance company.
The distribution phase then is when the insurance company makes it’s periodic payments to the annuitant. An annuity plan is commonly associated with a life insurance product where the lump sum or structured settlement payments are made to a beneficiary where the buyer dies before receiving their annuity payments.
The structured settlement payment to the annuitant is allowed when the buyer reaches a certain age. This age is commonly set by the insurance company at 59 ½ years old.It is only then that the periodic annuity payments may be withdrawn. Earlier withdrawals may be possible but there would be taxation and transaction charges involved.
The taxes applied would be 10% of the invested money along with regular tax payment rates on the interest earned. Surrender charges are calculated by the insurance company depending upon when the withdrawal is made and from what annuity plan. The buyer of an annuity plan should assess his or her options and understand all the terms of the annuity before purchase.
Types of Annuity
Generally speaking there are two types of annuities those being fixed and variable.
In a fixed annuity plan, the insurance company guarantees a fixed interest rate for the period in which the annuitant is accumulating the money. In the fixed annuity a regular payment will be made over a specific period of time i.e. 25 years or for the length of the buyer’s or spouse’s lifetime.
A variable annuity will when the buyer’s payments are invested in different investment plans. The annuitant select which type of investment options they prefer which is usually some sort of mutual fund. The interest earned and the periodic payment are dependent upon how the chosen mutual funds perform. While the variable annuity is a higher risk it can offer higher interest rates and better periodic payments over the safer fixed annuity plan.
Depending on the annuity payment options chosen by the annuitant the payment may be immediate or deferred. Obviously within an immediate annuity agreement the lump sum payment or structured payments start straight away while with a deferred annuity payments a lump sum annuity is paid at a pre-determined time in the future.
A single premium type annuity is when the payment is made in one lump sum and it is referred to as a regular payment annuity if the payments are made over time.
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Sell Annuity
How to Sell annuity
The Sell annuity option is one many people never consider.Whether it be a fixed, indexed or variable annuity many people don't know that they can possibly sell annuity for a lump sum payment and that investors do this all the time. So why would one consider selling annuities and using structured settlement company JG Wentworth and the like? Well with a lump sum one could invest the money for better yields or just a better rate of interest.Or one might need money for other financial endeavors like investing in buying a home, going to college or buying a business etc.
Restrictions when selling annuities
There may be restrictions in place when it comes to selling your annuity, usually some sort of time restriction. Also to be considered is associated charges involved in a withdrawal made before the decided date.When selling annuity payments you have the option to limit withdrawal fees which helps get more from your annuity money. Many companies buy annuities as an investment so look around for the best deal if you are considering selling your annuity.Different annuity contracts contain different options and not all annuities can be sold. Structured settlement companies offering to purchase your annuity will review the settlement contract to determine if Selling annuity is indeed an option for you. If it is and they proceed to buy your annuity then they will be given the right to the annuity and all future payments.
There are various ways to sell Annuity
It is possible to sell a portion of your future payments without selling your whole annuity.Another option for selling annuity payments is to sell the whole thing for a lump sum payment.Be sure to consult with a tax professional before you do anything. It is clearly imperative to know the tax repercussions before opting for an annuity buyout.Many annuity investments offer tax advantages with deferred payments. It is important therefore for you to weigh up the tax benefits and disadvantages before selling your annuity. Many people make the mistake and sell their annuity before reviewing all of their options and lose money because of it.
selling annuity tips
Examine your reasons for originally having the annuity to begin with.Was it to provide for you as you got older? If it was then the long term security of your annuity should be considered.You can structure your annuity to pay you for your entire life no matter how old you live to.Great security.
If you die prematurely your annuity can be paid to your beneficiaries such as a surviving spouse or children who will not incur any probate taxes.There are no continuation fees or costs involved with your annuity you carry on earning the interest.
Annuities are fully guaranteed,offering security and protection.This means the money invested is generally not money lost although you should check that the company is well established and has a good reputation.Annuities offer a double guarantee. That of the insurance company holding the funds and your state of residence .Annuities provide tax deferral. As the funds accumulate there are no taxes to be paid.You also get an exclusion ratio with annuities.
When financial hardship hits you a quick temptation may be to sell your annuity. Wait! before selling your annuity consider all the ways to get access to your funds. Contact the company from where you bought your annuity and find out what other options you have.
Alternative options to selling annuity payments
Consider taking a 10% withdrawal of your account annually. Earned interest is usually available for withdrawal. Withdrawing your funds without surrendering the penalty over five years is also another possible option.Changing your annuity to a fixed payout can be done without any penalty. In a situation where you need to use all or a major part of your annuity fund there would be the contractual surrender penalties.This would still be less than selling your annuity to another company.
Before considering annuity buyouts review all the options available to you.Don't be rash in your decision making process
Buyers of annuities get all or part of the remaining monthly payments.You can sell installments from your annuity for a lump sum payment. You can sell your annuity through a shared structural settlement plan.This helps make the current financial payments,
as only the necessary monthly installment will be bought. Finally, a lump sum deferred payment from a structured settlement offers instant cash now.
Hopefully this information has enlightened those people who did't realize their annuities could be sold. The bottom line is you need to first find out if selling annuity payments is an option available to you.Next you must do the math and decide if selling your annuity is a financially viable thing to do.If you need cash now consider every option before completely selling your annuity investments.
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