What are Secondary Market Annuities?
12 23 2016
When you own an annuity, you receive regular, annual payments over the course of several years. These "structured settlements" are a reliable, popular form of capital investing.
But investment needs - like financial circumstances - can change. For some, the schedule of future income payments is a perfect strategy for long-term yields. After all, it's smart to focus on the future if you have the means to invest. You'll give up liquid capital, but you'll have solid gains to look forward to down the road.
Generate Immediate Income with Secondary Market AnnuitiesFor others, reliance on a years-long schedule is simply too rigid, and too slow. Those annuities owners might prefer to turn to the secondary market, to sell the annuity for a lump sum.
With Secondary Market Annuities (SMAs), there are advantages for both parties. The seller is able to generate immediate income, which gives them greater short-term financial flexibility and empowers them to pivot to other short-term investing opportunities.
SMAs Are Credit Obligations of Top-Rated Insurance Companies.Secondary Market Annuities are lower-risk financial opportunities than most traditional investments. Payment streams for SMAs are backed by insurance companies rated A or better. Those companies face strict oversight from federal regulators as well as state insurance commissions. And even though the annuity was bought on the secondary market, the payments still come from the issuer of the annuity. These payment streams are treated as the insurance company's credit obligations; even if the insurer that issued the annuity ceased to operate, there are runoff policies to protect and pay those obligations.
Uncorrelated Returns, Proven Investment.Many investors prefer structured settlement payment streams because they are uncorrelated - generally unaffected by broader economic volatility. So in the event of a recession, a real estate market tumble, or a new policy from the Fed, SMA payment streams are affected less than traditional investments like stocks or bonds. Additionally, the annuity payment default rate is historically very low, making it a safer, more secure option in capital investing.
Cash Flows Come from Diversified Sources.With fixed-rate products, you typically know what you're getting. But because the periodic payments from annuities can be purchased at a discount, SMAs can lead to higher yields than comparable financial products. And investors are able to tap into payment streams from a variety of diversified sources - investment annuities, payoffs from lotteries and lawsuits, insurance arrangements, and even wills.
Are Second Market Annuities Right for You?That's not to say Secondary Market Annuities are right for every investor or financial planning strategy. In many cases, the buyer of an SMA must retain it for the duration of the contract. If you are looking for short-term investing solutions, you'll have to closely evaluate the specific terms. But it's often possible to choose a payment stream term that meets your needs. Unlike an income annuity, an SMA cannot be sold. Also, the buyer typically cannot take out an advance on payments.
Whether you're looking to enhance your portfolio or shift your capital investing strategy, Secondary Market Annuities may be an intriguing option. After all, in today's uncertain markets, alternative investments have become the new norm to achieve meaningful diversification. Talk with your financial advisor and find answers to your questions online to determine if SMAs are a fit for your investment approach.
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