Sell Annuity Payments Easy

Sell Annuity Payments Easy TL;DR

4 factors will determine how much money you’ll get if you decide to sell annuity payments. We go over these 4 factors in detail below.

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Sell Annuity Payments for Cash

Here Are the 4 Factors That Decide How Much Money You’ll Get

When you sell annuity payments, your payout is set by the discount rate a factoring company applies. Simply put, the lower the rate, the more money you’ll receive. When comparing offers, check the discount rate and the net offer in writing. Don’t be distracted by extra perks; what matters is the money you actually receive. The following four factors are taken into consideration to determine your payout. We’ll go over each one in detail.

Payment Dates and Amounts
Time Value of Money — Present Value Calculation
Guaranteed vs Life Contingent payments
Financial Strength Rating of Annuity Issuer

Lower discount rate = higher payout

1. Payment Dates and Amounts

The dates and amounts of the annuity payments you want to sell are taken into consideration. Payments scheduled farther in the future are worth less today because of the Time Value of Money. A $75,000 payment due next year is more valuable than that same $75,000 due five years from now.

2. Time Value of Money — Present Value Calculation

Cash Now is King

The Time Value of Money is a financial principle that states money today is always worth more than money promised in the future. You can put money you have now to work by investing it to earn interest or get a return, whereas money promised in the future can’t be accessed, has a degree of uncertainty, and loses value due to inflation. Professionals use a Present Value Formula to calculate what future payments are worth today.

To Better Understand Time Value of Money

If someone were to offer you 1 million dollars today or 1 million 20 years from now, what would you choose? I know the answer and so do you. This simple example illustrates how cash now is ALWAYS worth more than cash promised in the future – TIME VALUE OF MONEY.

3. Guaranteed vs Life Contingent Payments

Guaranteed payments are viewed as lower risk and receive better discount rates than life contingent payments, which only pay if the annuitant is alive on the payment date. Because life contingent payments carry more risk, they are bought at higher discount rates.

4. Financial Strength Rating of Annuity Issuer

Buyers evaluate the financial strength of the annuity issuer using ratings from AM Best, Fitch Ratings, Moody’s, and S&P Global. Payments backed by highly rated life insurance companies are considered low risk. Conversely, lower ratings slightly increase the buyer’s risk, resulting in higher discount rates.

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