How to get cash for annuity

Hold on a minute! Before we tackle how to get cash for annuity payments, let us first make clear the nature of annuities. This can help you have a better understanding of how exactly to get cash, and just how much cash you can get for them..  

Annuities are simply assets. They are your own personal property, and as such can be disposed of as any other personal property. However, this personal property of yours rather more resembles a debt owed to you. Rather than receiving the payment of this debt in one lump sum at a set time, this debt is paid to you in increments, or installments, over an extended period.. 

The very nature of an annuity creates two main problems.

Common incurrence of such debts would be in the case of liabilities owned due to civil damages against your person (such as in a personal injury or workers’ compensation case) or if you purchased a particular type of insurance/pension plan option that pays you a regular dividend over several years. It can even be due to winning a lottery or some other type of contest wherein the prize money is a sizeable sum.

The first is the inconvenience of waiting to collect on your “debt”. In the case of personal investment, this is less of a concern, as you would have factored this in when making your investment. In the case of civil liabilities owned to you, then this can be a real problem especially since you may need the cash to pay off your immediate needs such as medical bills and other urgent expenses.

The second is the risk of collection. For example, if  a person who owes you the money dies, becomes physically/mentally capable to pay, or declares bankruptcy then you stand the chance of not collecting even after paying for extensive and troublesome legal  services.

So now we’ve established two key concepts about annuities: that they are your personal assets, and that there is inconvenience and risk involved in transforming those assets into cold cash. 

The first concept tells us that annuities can be sold for cash just like any other asset. Although you can get a cash lump sum for your annuity, expect the amount add up to much less than the total sum owed to you. This is because you’d have to subtract the legal and administrative fees necessitated by transferring the debt 

The second concept then tells us annuities can and should be made attractive and a worthwhile investment to prospective buyers. This means that you will have to sell your annuity to them at a lower price than the total amount owed you.

How much lower? Theoretically you will have to give at least an interest discount equivalent to bank rates. However investors are rarely lured by such a minimal discount. That is because you still have to account for the second property of annuities: the risk and inconvenience of collection involved. Hence you have to give them a further discount to cover these risks. In addition, buyers of debt have to cover their own cost of operation. They also have their own profit margin to consider –a consideration that is passed on to you.

This simply means that selling an annuity for cash, no matter how appealing it may seem, is definitely not a matter to be taken lightly. Generally speaking, you should sell an annuity only on two occasions: if there is a far better investment opportunity immediately available  to you, and if there is a dire and immediate need for a lump sum for cash.

If you do decide that you want to go through with cashing in your annuity, carefully consider whether or not the returns are enough to cover your risk. You can do this with the help of a financial advisor such as a broker, asset manager or financial planner. Have the asset manager, professionally asses your obligations, income, assets, and risk threshold and then have him give you options. You may not even have to sell your annuities to cover your needs.