Who Can Buy Annuity Payments?
Individual and Institutional Investors Buy Annuity Payments
Behind the Scenes
Annuitants usually don’t care who buys their annuity payments. Most just want to sell their payments, get their money, and move on with their lives. This section takes a behind-the-scenes look at who buys annuity payments, how those payments are assigned, and who ultimately ends up holding them.
Individual Investors
Consideration from Each Party is Necessary
Both the annuitant and the investor should be aware that another party is on the other end of the transaction for two key reasons. The annuitant must provide the necessary documents promptly to ensure the transaction closes smoothly. Conversely, the investor needs to recognize that the annuitant is selling because they need money quickly. Once all closing documents are in order, the investor must fund the transaction promptly.
Compliance Requirements
Individual Investors Aren’t as Strict as Institutional
Structured settlement annuity transfers take two months on average to complete, regardless of who buys annuity payments. Generally, individual investors have less strict funding compliance requirements than institutional investors. Factoring companies working with individual investors can often close transactions faster.
Institutional Investors
Factoring companies sell or assign their interest in structured settlement annuities to institutional investors. Initially, these payments may be transferred to the company’s address or PO Box. Later, the factoring company pools these payment rights and securitizes them for institutional investors. Institutional investors have funds specifically set up to purchase these debt obligations from factoring companies.
This process is similar to what home mortgage companies do. Mortgages originated by commercial banks are often sold to government-sponsored entities Fannie Mae, Freddie Mac or Ginnie Mae. Their purpose is to provide mortgage originators with more capital to lend to prospective homeowners. Your mortgage payment doesn’t change; usually, only the address for mailing payments changes — if you still mail checks at all.
Compliance Requirements
Institutional Investors Are Stricter than Individuals
What does this mean for the annuitant? Institutional investors that buy structured settlement annuity payments have stricter compliance guidelines and require more documents than individual investors. Institutional investors typically require the following:
- Acknowledgment Letter (Post Hearing)
- Annuity Contract and Current Benefits Letter
- Bankruptcy Discharge *
- Child Support Payoff *
- Credit Report
- Divorce Decree *
- Driver’s License or State ID
- Release & Settlement Agreement
- Release & Settlement Agreement Affidavit *
- Social Security Card
- Stipulation Signed by All Parties *
- Uniform Qualified Assignment
* If applicable
Get Closing Documents Early On
A proactive factoring company will assist the annuitant in acquiring all necessary documents before the court hearing (except for the acknowledgment letter). Waiting until after the hearing to gather documents delays closing and frustrates the annuitant.
Factoring Companies Occasionally Buy Annuity Payments
A Rare Occurrence
Factoring companies rarely buy annuity payments on their own behalf and wait for the payments to come due. A factoring company might buy an annuity if no investor is available, or if the transfer’s discount rate is extremely generous, and the payments aren’t due far in the future. Another possibility is an annuity that is ideal for a founder’s retirement or for their children’s future.
Factoring Company Business Model
The factoring company’s business model isn’t to buy annuity payments and wait to collect them — just as mortgage originators don’t issue loans to collect monthly payments for 30 years. Many people mistakenly believe that the factoring company is the entity that ultimately buys and receives the annuity payments, but in reality, all factoring companies act as middlemen.
In Closing
The annuitant needs to provide all required documents to their chosen factoring company promptly to speed up the closing process — regardless of the type of investor buying the annuity payments.
