Annuity FYI Blog

The secondary market for annuities has only been around for a couple of years, but it offers a wealth of benefits for annuity investors.  According to J.G. Wentworth’s “New Opportunity: The secondary market for annuities creates new options for you and your clients,” a secondary market annuity might be the right choice for many people.  If you own an annuity, this market can help you liquidate.  It also boosts the insurance industry as a whole, including helping agents and brokers.  Financial advisers can increase their revenues, better help their clients, and increase their marketing with the secondary annuity market.

There are five steps that will occur in a typical secondary market annuity sale.  First, an insurance agent or broker sends an annuity contract to the finance firm that may purchase the annuity through a brokerage general agent.  Next, the finance firm sends purchase options back.  The investor and their adviser determine what option is best for selling their variable or fixed annuities and respond to the finance firm via the brokerage general agent.  The finance firm then lets the insurance company know that the purchase has been completed.  Finally, the investor will receive their proceeds in two to four weeks after the agreement is finalized.

According to “Feature: Regulator group moves to reign in secondary market for annuities,” Trevor Thomas of the National Underwriter notes that death benefits related to annuities are coming under fire.  The Interstate Insurance Product Regulation Commission voted to let annuity carriers end the guaranteed living and death benefits when the annuity has been sold in the secondary market.  This includes all individual deferred annuities, both variable and fixed.

There are some exceptions to this new rule regarding secondary market annuities.  If the annuity is transferred to a personal trust, changed to a joint spouse annuity, updated with a new spouse, or is a 1035 exchange from one annuity right to another the guaranteed living and death benefits won’t be automatically canceled.  Twenty-eight of the twenty-nine states that voted were in favor of the rule, but individual states will have the right to opt out of implementing it.

The actual annuity policy cannot be terminated, only the guaranteed rider associated with it.  Any restrictions on annuity transfers will have to be told to consumers up front.  Life insurers and life settlement professionals did not agree on whether this new rule would help consumers.  Each side had their own opinions on the ruling, which has been researched for nearly a year.  As this rule goes into effect in less than ninety days, it remains to be seen what the effects will be on consumers, insurers, and the secondary annuity market as a whole.

According to Business Week article “Annuity Exit Strategies: Thanks to a nascent secondary market, it is becoming easier to cash out your policy,” annuities have become more like mutual funds, stocks, and bonds.  Many investors worry that they are stuck with their annuities, especially if they are already receiving payments or the annuities are deferred.  Secondary market annuities give investors the ability to either sell or cash in annuities that they no longer need monthly.  Some investors need a lump sum payment with their investment as they find out their financial situation has changed.  The American Council of Life Insurers said that a quarter of annuity holders are worried that they would not be able to liquefy their annuity if the need arose.

Met Life, Prudential, and many other companies are purchasing unwanted annuities, packaging them into asset-backed securities, and selling those securities to institutional investors.  Selling a secondary market annuity is complex so it is crucial that you speak with an insurance expert to ensure your deal is a solid one.  There are a few types of annuities that won’t qualify for the secondary market, including a life-only immediate annuity.  The price you receive for your annuity is based on the annuity value, the length of time you were to receive your payouts, and current interest rates.  The most common annuities sold in the secondary market are lawsuit settlements and lottery winnings, but many kinds of annuities are eligible and are sold for an array of reasons.