The Fixed Annuity "Resale"
Fixed-annuity resales are fixed annuities sold by individuals. (Typically, a resold annuity is a lottery winner's annuity payout, a lawsuit or structure settlement, or even a normally purchased fixed annuity.) For whatever reason, the original owner of the annuity decides to relinquish the annuity in exchange for cash now.
To attract a buyer for his fixed annuity, the owner must discount the annuity. For example, say the original owner is getting a 4% fixed return on his annuity. By offering the annuity at a significant discount, he creates an opportunity for a buyer to realize a much higher return rate--usually something between 6% and 9%.
Fixed annuities have been one of the safest investments in history. Babe Ruth put a large chunk of his wealth in fixed annuities before the 1929 Stock Market Crash. Thanks to those annuities, he retired comfortably in the middle of the Depression.
Fixed Annuity Resale Advantages
- Higher-than-normal returns
- Annuity value unaffected by variations in interest rates
- The buyer is covered by both the claims-paying ability of the life insurance company and by state legal reserve pools
Fixed Annuity Resale Disadvantages
- Typical holding period is 5 to 15 years.
- Subject to interest-rate risk, like all investments.
Things to Look For
- Make sure the annuity is from a top insurance company with a high rating from AM Best or other rating agencies.
- Use a bank trust company to ensure a safe transaction.
- Make sure that you receive a closing book and that an attorney reviews all the documents to protect you.
- If the annuity is life-contingent, make sure that the financial institution includes a term life policy on the seller and that you are the beneficiary. This means that if the seller of the annuity dies, you get all the payments from the annuity plus the proceeds of the term-life policy.
