Corporate Finance: Secondary Market for Annuities

Corporate Finance: Secondary Market for Annuities

Annuities are a type of financial instrument wherein a person or persons pay a certain amount of money into an investment, which will be returned to them (with interest or earnings) at a later date (or in some cases, immediately) with periodic payments. Many financial advisors and insurance agents offer their clients such instruments, as part of their retirement or wealth management plan. Or, the original annuity could also have been part of a structure settlement or lottery winnings. If a person sues a person in an accident or other mishap because of something the defendant did or was responsible for, then they may receive a certain amount of money, but not in a lump sum, but smaller payments over time. Lottery winners also have this option, that, instead of a lump sum, they get periodic payments. These are the three common types of annuities, but it is usually the second type, the structured settlements, which are available on the secondary market.

So, what, therefore, are secondary market annuities? Well, some people may decide that they do not want their annuities anymore. They might not have enough money to pay the monthly payments or they simply need the cash now. They can then opt to sell their annuities, which is what secondary market annuities are – they are, simply, second-hand annuities, or an annuity that someone else had initially purchased and now want to sell. With secondary market annuities, the buyer actually purchases the right to receive the contractual guarantee from the original holder of the annuity. So, when you buy secondary market annuities, you will end up buying the rights to receive payments from annuities, structured settlements, or lottery winnings. Many people invest in secondary market annuities as a way to increase their wealth.

Now, owners may sell all or part of their annuities. They might need the cash now and cannot wait for their periodic payments. Perhaps they are having a hard time financially, having health issues, or perhaps they may even want to get higher education or start a business and they need capital.

According to studies, the secondary market annuities asset class has about 600 million to about 1 billion in inventory available per year. With so many opportunities available, more and more people should start learning more about this asset class. This niche sector is fast becoming one of the largest financial instruments today and some are saying that this is already beginning to affect yields and increase prices because of the demand.

Why should you invest in secondary market annuities? Well, these can yield pretty high interest, anywhere from 0.50 to 2.00, which can be much more than most savings accounts. With the larger contractual payout, the buyer is actually in a better bargaining position. They can choose different terms and ratings depending on their objectives. Today, as much as 30% of the secondary market for annuities are available to individual investor, so the opportunity is there for anyone who wants to increase their wealth and secure their future.

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