Buying an Annuity

Tax advantages make annuities a popular method of saving for retirement.

An annuity is a financial asset. A person purchases an annuity from an insurance company, and the insurance company pays the annuitant the full amount of the annuity over a number of years. Annuities are a popular way to set aside money for retirement, especially when a person has already contributed the maximum amount to their 401(k).

Annuities are also popular because money invested in an annuity will grow tax-deferred. That means when you receive payments, you’ll only be taxed on the interest earned, not on the amount you originally contributed to the annuity.

The annuity contract is written when the annuity is purchased, and it dictates the annuity terms, such as when you will receive payments and how much each payment will be.

Types of Annuities

There are several types of annuities, but most fall into one of two major categories — immediate or deferred. If you have an immediate annuity, you will begin to receive payments shortly after you purchase it. Conversely, it will take several years, or even decades before you begin receiving payments.

Annuities may also be fixed or variable. Fixed annuities are low-risk and guarantee a certain payout. Variable annuities are riskier because they rely on the state of the stock market, but could yield higher payouts.

How to Buy an Annuity

Buying an annuity starts with researching an insurance company to invest with. Many people may choose to ask their accountant for help when selecting where to buy an annuity.

Once you select an insurance company, you will work with a licensed insurance broker who should get to know you and your needs. Together, you will determine what type of annuity is best for you. You should also come prepared to discuss when you want to start receiving payments, how often you want to receive them, and if you have an idea payment amount in mind.

After you decide on an annuity to invest in, you must apply through the insurance company. No health forms or credit checks are involved in this process. When the purchase agreement is accepted, you will pay the insurance company the money for the annuity up-front. Some companies also allow you to pay for the annuity in installments.

Can I Cancel My Annuity?

There is a limited window to cancel an annuity after you buy it, called a “free look” period. This may vary from company to company, but free look periods typically last from 10 – 30 days after the annuity is issued.

Once the free look period has expired, you can choose to withdraw some or all of your annuity early, also known as surrendering the annuity. This can be a costly process, however, because annuities are designed to be financial planning tools. The government allows annuities tax-deferred status to incentivize people to use the tool. Conversely, when someone withdraws their money early, they are hit with heavy surrender fees from the insurance company, as well as tax bills and penalties from the government.

To avoid paying the surrender fees and hefty tax bills, many choose instead to sell the right to some or all of their future payments to an annuity factoring company such as CBC Settlement Funding. We will purchase your annuity and provide you with a lump sum of cash. To get more information on the selling process, or a quote on how much your annuity is worth, call us.

I’ve Worked with Another Annuity Buyer. Can I Still Work with CBC?

Yes. You are eligible to start the transfer process to sell part of your annuity even if you have previously worked with another annuity buyer.

While some people choose to sell their entire annuity or structured settlement for a lump sum it is not necessary to do so. Depending on your needs, selling a portion of your annuity at different times may be the most logical option. Selling a second portion of your annuity is a simple and easy way to get another lump sum of money if your financial needs suddenly change and current annuity payments fail to meet your needs.

You can also sell your payments for a certain amount of time, after which the rights to receive future payments revert back to you.

 

Let CBC Help

Our team of experienced, caring professionals will make the process of selling some or all of your structured settlement or annuity payments easy.