Question: What is a secondary market annuity? Also, where and how can I buy them if I’m interested? from Jess in Brookfield, Wisconsin
Answer: Excellent question about a very small (but growing) niche market within the annuity world. As you know, there’s a secondary market for just about every product on the planet, and that includes annuities. If you are shopping for higher yield and higher payments, then this might be a product type that you want to explore because yields can be 2% higher (or more) than what you can buy from an original issue standpoint.
The secondary market primarily come from annuities where the owner sells the rights to some or all of the payments. These annuities typically originate from people that have been in accidents, and a judge has rewarded guaranteed annuity type payments as part or all of a settlement. The original owners sell the rights to the payments in exchange for a lump sum usually as a result of failing health, financial problems, etc. When you buy a secondary market annuity, you are literally buying the rights to the contractually guaranteed payments, and the issuing insurance company retains full ownership of the annuity.
In order for you to buy the rights to the payments, an actual judge has to approve this contractual change of annuity benefits. The issuing insurance company has to approve this transaction as well since they are going to own the policy, and are agreeing to pay the benefits to the new person that will be receiving the payments.
The process to finalize the purchase of a secondary market annuity can take as short as 10 days to as longs as 2 months…or more. It’s very important to use a company that specializes in the secondary market world because the process can be very detailed as well as lengthy because it has to go through a legal process. I’m Stan The Annuity Man, and only specialize in annuities, and even I refer ALL secondary market annuity business to a true specialist. That should tell you something right there!
There is a finite amount of these offerings, with an estimated $600 million to over a billion dollars available on an annual basis. Currently, over 70% are swiped up by big money investors like hedge funds and large institutional players. The other 30% does trickle down to individual investors, and I would encourage you to take a look at the ever changing inventory on an ongoing basis.
In my opinion, the best inventory source can be found at Somerset Wealth Strategies, which was founded by CEO Tom Hamlin….the undisputed guru of secondary market annuities. His firm is very thorough in handling these transactions, and they require that every single case is reviewed by an outside attorney to make sure that all of the “i’s” are dotted and “t’s” are crossed. In the world of secondary market annuities, being thorough is a good thing.
I would also encourage you to involve your own CPA or whoever you trust that handles your taxes. They need to be a part of the process before, during, and after the transaction is finalized because you want to make sure that the tax ramifications are covered properly. No do it yourselfer’s here please!
The other little “need to know” about secondary market annuities is that these strategies definitely fall under the category of “if you snooze, you lose.” What I mean by that is when you see a specific offering that you like, you have to pull the trigger on your decision or it will be gone quickly. More and more investors are learning about these higher yielding strategies, and finding out that most secondary market annuities are associated with highly rated companies. In short, the secret is out, and there are a lot of aggressive and educated buyers out there.
So with Bernanke passing the “easing” torch to Ms. Yellen, we might be in store for lower rates or a flat rate environment for the foreseeable future. If that’s the case, and I think it is, then secondary market annuities might be a good and needed addition to the guaranteed part of your portfolio.
*If you have a question for Stan The Annuity Man, please send your question to email@example.com. He will answer all questions directly, and might include yours in his next Annuity123 “Ask Stan The Annuity Man” blog.
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