3 Reasons to Add Secondary Market Annuities to Your Port | Woodbridge
08 18 2016
What are Secondary Market Annuities?
Secondary Market Annuities refer to the private sale of future income streams from immediate annuities, structured lawsuit settlements, and lottery payments to a third-party (aka: the assignee) who is purchasing the right to receive the contractual guarantee from the original policy in exchange for a lump sum payment.
Why Secondary Market Annuities Are Good to Own This alternative financial product can offer above average returns while also providing a similar level of capital protection that is often associated with insurance products. Specifically, here are three reasons people place their money in Secondary Market Annuities.
(1) Consistent Fixed Series of Payments
When a buyer purchases a Secondary Market Annuity, they obtain the rights to receive the steady future payments of the original fixed annuity. These SMA's are existing and fully funded payment obligations.
An assignee may be able to purchase the totality of all remaining future payments or an agreed upon portion of future payments. The assignee and payee of the SMA can come to terms on what arrangement satisfies both parties.
Monica is awarded a structured lawsuit settlement. This settlement will be placed in a fixed annuity, purchased from a major insurance carrier. This annuity will pay out $5,000 monthly for the next 7 years - totaling $420,000. Monica would rather receive a lump sum payout immediately rather than monthly payments for the next 7 years. She opts to sell her rights to the original policy as a secondary market annuity over to a third-party at a discounted price. In exchange the third-party will receive the $5,000 monthly payments for the remaining term.
(2) Higher Yield Potential
The core of 'how' SMA's can achieve higher interest rates is due to discounted cash flow. Secondary market annuities are able to yield higher rates because they are generally sold by the original payee at a discount to present value. To find out more about how to earn returns of 4%-7% in short term maturities contact Woodbridge Wealth today.
The payments rights which an assignee purchases are guaranteed senior obligations by the original annuity issuer. The original policies are often issued by highly rated insurance carriers such as A.M. Best Company, John Hancock, Prudential, and Metlife, and may be secured in-part by state insurance guarantee funds. Furthermore, all insurance carriers are subject to federal oversight and state-by-state insurance commissions.
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