What are variable annuities?

There are two types of investment annuities. The first is the fixed annuity, which is guaranteed to give you payment at a later date. The fixed annuity is an option for conservative investors, because the rate of return can be relatively low due to its lack of risk.  

The other type of annuity is variable annuity, a scheme in which you can choose where to put your hard-earned money for investment, instead of receiving a fixed payment.  You can invest in mutual funds, stocks, money markets, and other financial ventures.Thus the payment that you receive from the company will be dependent on the performance of your investment.

Can you get cash for your variable annuity?

While most investors enter into annuities to plan for long term investment, occasions do arise when cash is immediately needed. Such instances are pressing debt, immediate and attractive investment opportunities, or perhaps unforeseen and pressing expenses. In such cases, you may want to sell your annuities for cash. Is this option readily available? The short and simple answer is ‘yes, you can get cash for your variable annuities.’ In fact companies today offer flexible terms such that you can choose to dispose of either the entire value of your annuity or just a portion of that annuity.

While you can get spot-cash for your annuity, expect the amount to be much less than the total sum owed to you. First you will have to pay for the necessary processing fees to sell your annuity. Even if the buyer of your annuity claims that they will absorb this cost, expect that the cost of such operations have already apportioned to your transaction.  In addition to this cost, expect the buyer of your variable annuity to offer you a lower rate of return than you originally bargained for. This is because you are effectively transferring the time cost of money attached to annuities to the buyer. The buyer will then have to deduct his targeted profit margin from your return rate. 

What should you look out for?

There is an extra layer of complexity when selling variable annuities.  Remember that variable annuities’ return are not fixed or guaranteed to your person, but instead have a rate of return that is dependent on the performance of a pool of investments. As such there may be extra complexity in calculating the worth of the pool of investments which either you (or your providing firm) chose. Complexity may arise as the buyer of your annuity may evaluate the worth of your fixed pool of investments differently from the agency that sold you the annuity.

It is always a good idea to consult a professional asset manager or trusted financial advisor when deciding on whether or not to sell your annuities. Buyers of annuity and similar debt-like assets are naturally out to get your annuity for all its worth at your expense. Have an asset manager professionally asses your obligations, income, assets, and risk threshold and then have him give you options. Ask your asset manager to provide an unbiased assessment of your annuity, as well as to evaluate the firms that you should approach. The caution that you exercise will serve you well when you finally cash in your annuity..