“Should I Sell My Annuity Payments?” Maybe Not

Annuity payments are applied to a variety of different circumstances for different reasons.  People who receive a large prize be it from lottery winnings, a legal settlement, inheritance and other financial windfall are often paid in the form of an annuity (also called a structured settlement).  While payments over a long period of time are nice, sometimes people’s lives change and they need all the money due them immediately (due to a medical emergency, perhaps?).  Some regions allow the sale of annuity payments while the vast majority of states have banned the practice.  If your annuity meets certain criteria and you live in an area where it is legal to sell annuity payments, this may be an option for you.

If you are currently receiving payments, it is a bit more complicated than going to a lawyer and saying, “I want to sell my annuity payments.”  Assuming you live in a state where this is legal, you must have an annuity that is not tax qualified meaning your original contract cannot have provisions exempting payments from certain income taxes or other tax benefits.  Your annuity can also not be of the variable type and of course, you must live in a region where the sale of such contracts is not banned by law.

When Not To Sell?

If you are lucky enough to be able to sell your annuity, there are important considerations before doing so.  After selling annuity payment and receiving a lump sum, you are now in control of the money management aspect of your finances, which is what the annuity was previously in place for.  Even a huge sum of money can quickly be depleted when mismanaged.  If you are trying to sell payments in order to get money to buy something frivolous like a car or other non-essential purchases, it is best not to sell.

Additionally, you shouldn’t sell annuity payments if you don’t really need the money.  Buyers out there are not your friends;  rather, they are in this business to turn a profit.  In other words, you’re going to have to sell at a discount.  Unless you have a knack for trading stock options or penny stocks (and you almost certainly do not), it’s usually in your best interests not to sell.

When To Sell?

Some very good reasons to sell your annuity payments would be to pay for college for yourself or a family member, paying off debt, buying or putting a down payment on a home  Annuity arrangements are used for the exact purpose of protecting those receiving the money from premature depletion of a significant lump sum and should not be circumvented lightly.

Once you do decide to sell annuity payments, an attorney is sometimes the best person to contact if you already have a specific buyer in mind.  While you will still have to pay for services rendered, an attorney is charging hourly and may have no interest in the amount you will be receiving.  Alternatively, there are plenty of structured settlement companies out there; however, many of them are not exactly reputable.  Tread carefully.