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Retirement Planning > Retirement Investing > Annuity Investing

What your clients need to know when selling an annuity

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Some financial problems are too big to handle on our own. And when clients encounter costly life events, like medical bills or college tuition, it’s hard for them to know how to move forward.

Using money from an annuity is a possible solution to these types of events. By selling annuity payments, your clients can quickly address financial crises without taking on debt or putting their life on pause.

While the cash in an annuity is intended for future use, some situations require immediate access to those funds. But before you, the client’s advisor, recommend selling an annuity, it is helpful to understand how the process works.

The Selling Process

Selling payments is a fairly straightforward process. Once you contact an annuity purchaser, you will be provided with a quote for how much the client’s annuity is worth. The purchaser will also examine the client’s contract to make sure the annuity is transferable.

Check to see if the company you are selling the annuity to is reputable. Ratings agencies like Moody’s, Standard and Poor’s and A.M. Best can provide financial safety profiles for annuity purchasing companies.

When you find an offer that is suitable for your client’s needs, proceed by completing and submitting the paperwork provided by the purchaser. Some companies will then send a cash advance to help with immediate financial needs while the client is waiting for the process to be completed.

If your client is selling a payment from a structured settlement, he or she will need a judge’s permission to complete the sale. Laws concerning structured settlement transfers are fairly stringent and this is to protect the client. The judge will make sure that the transaction is occurring for a legitimate reason and in the client’s best interest.

Some common reasons likely deemed legitimate, include buying a first home, financing a small business, handling college tuition or controlling of debt.

Most companies will pay for an attorney to represent your client during a court hearing. After a judge approves the transfer, the company gives the client the cash needed to regain control of his or her finances. Examining the Annuity’s Value

The cash received from an annuity will be less than the amount provided if the client were to wait to receive the annuity payments years from now, according to the schedule written into your annuity contract. 

Getting early access has a price. Companies usually offer between 50 to 80 percent of the value of an annuity, depending on market conditions. This discounted price is also based on other factors, like the length and timing of payments, the competitive prices set by other buyers, fees and charges, and how much of the annuity the client wants to sell.

Recognize the quoted amount may change if the client waits for a few weeks to decide if he or she wants to sell the annuity.

The client will have options for how much he or she wants to sell. For example, the client can sell the entire annuity or only a portion of the funds. It can be beneficial to keep a portion of the annuity to guarantee the ability to partially supplement retirement income.

Every financial dilemma is different and selling payments is not the solution for everyone. However, understanding the client’s options can enable you, the advisor, to make an educated recommendation for next right step.

 See also:

Annuity sales through banks topped $35 billion in 2013

Annuity sales continued upward momentum in 2013

In California, all annuity producers are crooks


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