The secondary market annuity category is a finite asset class with limited inventory available each year. More and more investors are learning about and participating in this sector, which is affecting yields and raising prices due to increasing demand.
Most secondary market annuities can provide a high yield (usually 4% to 6%, or more) and the buyer chooses the terms and carrier ratings to match their specific objectives.
As a buyer of a secondary market annuity you are purchasing the right to receive contractual guarantees from the original annuity policy. These types of annuities are initially issued to lottery winners or people that have been involved in an accident that receive a favorable judgment involving guaranteed annuity payments as part of the settlement.
When you buy a secondary market annuity, you are literally buying the right to receive those payments from the existing in force policy.
The original owners typically sell some or all of their annuity payments because they need or want a lump sum faster than the income stream they are receiving. This could be due to any number of reasons including poor health, financial hardship, an unforeseen expense, or a large purchase such as a home or business.
With secondary market annuities, “factoring” is used on these previously sold annuity or structured settlement payments which in turn makes them available to secondary market buyers. The new buyer receives the policy’s guaranteed payments in exchange for a lump sum.
The actual process can be a bit lengthy at times because a judge has to approve the ownership of the annuity payment rights, and the issuing carrier has to agree to this change as well. It’s important to remember that a structured settlement is a binding contract between the payee (person selling the payments) and the insurance company, so to transfer the payment guarantees actually involves going through a legal process. That’s why it is important to bring in help from someone who specializes in this secondary market area, and is properly staffed to support the lengthy and detailed transaction steps.
The positives of owning a secondary market annuity is that it usually offers a much higher contractual guarantee than what you could currently buy directly from any insurance carrier. If you are looking for yield or higher guaranteed payments, you need to consider these strategies to help combat the current low interest rate environment. Another upside is that most offerings are with solid, well known carriers with high safety ratings.
In today’s economy, secondary market annuities could be a good solution to add to your portfolio. If you would like to talk to see if this may be a fit for helping you reach your specific goals please contact me today.
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