Considering Buying Secondary Market Annuities?


So, what are Secondary Market Annuities (SMA’s), and where do they come from?

Secondary Market Annuities: An individual receives a structured settlement from a personal injury lawsuit (this is the most common scenario). The settlement amount may be quite large, but the payments are distributed through an annuity over time. Payments are made, usually monthly and often for a very long period (20 years is not uncommon). However, as the winner of the settlement, you would prefer cash upfront – so you decide to sell your payment stream at a deep discount for a lump sum payout to one of the many Firms (called “Factoring” Firms) that make these kinds of purchases.


Cash for life lotteries.

You are likely more familiar with this concept than you think. If you live in a State that allows “Cash For Life” lotteries, you may have noticed that you can opt for a cash payout instead of lifetime income if you win. The primary purpose of this clause must be for customers 70 years of age and older. After all, a common ticket to play is $1000 a week for life. That’s $52,000 per year, or $1,040,000 over 20 years. Since a huge portion of your customer base are people that are older and might be concerned that they will not live long enough to get the maximum benefit, it only makes sense to give them an option to take an all-cash payout ($600,000 is typical). There are many conceivable reasons for wanting to take the cash payout – regardless of age- but chief among them could be that you are worried that you will die and not be able to leave anything to your loved ones, as the lifetime payouts usually die with you.


Here are some things to consider:


Factoring Firms.

Because the factoring firm has bought the income stream at a discount, they can make a profit and maintain a high value for potential customers. With the markets currently running at low-interest rates, this may seem like a boon to many potential investors because they can get interest rates that are much better than generally available – often twice as good.

So, should you consider purchasing Secondary Market Annuities? Jason Zweig of the Wall Street Journal suggests caution:

“But as is so often the case when investments are promoted on the basis of high yield, these deals are unsuitable for most investors. Even in the rare situations when they might make sense, you must proceed with extraordinary caution.” (Read The Entire Article In The Wall Street Journal)


So, what are the risks?


Your money will be tied up, but safe.

So what are the risks? Well, like any normal annuity there is little risk that the issuing insurance company will fail – but do your due diligence, make sure the company is well-rated and is solid financially. Annuities (including SMA’s) also have some State-level guarantees – each State is different so you’ll need to inquire with your Trusted Advisor, but most will insure up to $100,000.00.


SMA’s are sold at a fixed price.

The major investment concern when dealing with Secondary Market Annuities is FINANCIAL LIQUIDITY! Just like a normal annuity, SMA’s generally require a fairly substantial investment. Unlike an annuity, where you can work with your Advisor and determine an appropriate amount to invest, Secondary Market Annuities are sold at a fixed price. Sure it might be a screaming deal to get say, 1 million in payments for 10 years at half price, but can you afford to tie up $500,000.00? You need to be sure that you can because unlike the person who originally sold their structured settlement, you cannot sell yours if you should have an emergency and “need cash now.”


Lastly, you need to be aware of.


Trust in the courts.

Lastly, you need to be aware that all Secondary Market Annuities need to go through a court process before they can be approved for sale – you should make sure that your Advisor can confirm that the company you are considering a purchase from has done all the necessary legal work, and your Advisor may recommend that you hire an expert in Secondary Market Annuities and their complexities to make sure that everything is in order.

If you are looking to speak to a Trusted Advisor regarding Secondary Market Annuities you can COMPARE RATES with us and we will help you find a reputable source for SMA’s.