An annuity is a financial product that involves an individual and an insurance company (insurer). It represents an agreement in which an individual makes payments to the insurer. In return, the insurer pays the accumulated sum of money to individual after an agreed period of time. Types of annuities include.
- Fixed annuity: They are largely favored by individuals who are about to retire or have already retired. The insurer extends a fixed interest rate as well as a specified amount of periodic payments. An annuity holder is guaranteed of an increment in the cash invested in a fixed annuity.
- Variable annuity: The insurer gives an individual the freedom to invest annuity payments to varied investment options. The annuity payments gain value based on the performance of the investment option chosen.
- Immediate annuities: Individuals make a lump sum annuity payment to the insurer. Thus, an individual is assured of receiving income regularly throughout their lives or until the expiry of the agreed period.
- Deferred annuities: Deferred annuities simply translate into delayed income. They support individuals in their quest to garner a constant income in the future.
Selling options for annuities
In selling annuities, sellers are presented with several selling options such as partial and entire annuity selling.
- Partial selling option: An individual might want to sell annuities without having to receive money immediately. Partial selling option serves this purpose. It enables annuity holders to sell annuities and receive the cash in future when it is needed the most. An individual specifies the duration of time- 5 years, 10 years- the annuity will be sold to a buyer. When the duration elapses, the individual is guaranteed of receiving the future payments.
- Entire selling option: It enables annuity holders to sell annuities in a single transaction in its entire amount. An individual gets the full lump sum all at once. The annuity holder does not receive any other payment in future from the annuity.
How to Sell Annuity Payments
Annuity holders mainly trade their annuity payments for a lump sum. The most effective strategies for annuity holders to sell annuity payments is through annuity brokers, insurance agents and financial experts.
- Annuity brokers: Annuity brokers are used by insurance companies to facilitate sell of annuities on behalf of clients. They have a strong bias towards annuities. Their excellent skills allow them to traverse the annuity market sector successfully. They incorporate techniques such as commercial and online advertising on different media platforms to get the attention of buyers. They have the power to strike a good deal between buyers and sellers. However, sellers should be aware that the likelihood of incurring relatively high costs during the selling process is very high when using annuity brokers. In order to acquire quality services when using annuity brokers, individuals should conduct adequate research to find out the best to opt for.
- Insurance agents: Insurance agents are involved in marketing different financial products offered by insurance companies such as annuities. When annuity holders sell annuity payments by making use of insurance agents, they stand to accrue attractive monetary gains. Insurance agents are also associated with reputable insurance companies which enhances their credibility. In most cases, they do not ask for commission from the annuity holder since the buyers pay them commission.
- Financial experts: It is crucial to engage financial experts in selling annuities. Financial experts are better placed to assess the binding contract between the seller and buyer. They ensure the annuity holder is not subjected to unseen costs which can have a negative impact in future.
Financial experts, insurance agents and annuity brokers are preferred in selling annuity payments because they are able to spearhead smooth transactions between sellers and buyers. In the process, they establish rapport between the seller and buyer leading to successful negotiations. They also keep up with emerging annuity trends. This enables them to help sellers make informed decisions. Apart from the full and partial selling option, they present an individual with multiple alternatives apart such as: multiple cash flow and multiple stage payout.
Reasons for selling annuities
- To boost savings accrued over time because the cash is received in lump sum.
- To generate security income flow for an individual after retirement.
- To get capital to enable individuals to venture into the world of business.
- To get finances to buy fixed assets such as buildings and land.
- To acquire quick cash to deal with emergencies such as education and medical expenses
- To be able to offset a bank loan without incurring a high interest rate charged when the loan is spread for several years.
- To acquire money to explore multiple investments options in areas such as the commercial real estate industry.
- To avoid decreased annuity value due to economic fluctuations such as inflation.