What is a Secondary Market Annuity?

Secondary Market Annuities (SMA) are a result of a personal injury case where the injured party or their heirs have elected to receive a structured settlement income stream and later may elect to sell a portion of their future payments to another person. The yield enhancement is a result of the discounted present value of the future income stream. This process is called factoring, and the companies which advertise for potential sellers to call them are known as factoring companies. You may even recognize these TV commercials touting “It’s my money and I want it now!” or a similar call to action. Secondary Market Annuities are the other side of that transaction and represent a great opportunity for stable, predictable income from a major insurance company which you are able to purchase at a discounted annuity rate. Each case is unique and different, given the payments a seller is interested in making available. Clients have used these payment streams for their own income, to provide a gift to charity, and for wealth transfer to their own heirs.

Should you Consider a Secondary Market Annuity for your Income Needs?

Just as the seller is seeking to gain liquidity, since they no longer want to wait for the calendar to say it’s time for their next payment, the buyer would be assuming that same lack of liquidity. The lack of liquidity should be seriously considered before purchasing an SMA. Therefore it is important to recognize other guaranteed income streams from immediate annuity contracts frequently lack liquidity since the purpose is to provide predictable income for a set period of time, or the rest of someone’s life. Please contact us if you would like to review life contingent SMAs, as that is a more advanced version of an SMA and beyond the scope of this article.

Court Approval Process

This process is outlined in IRC Section 5891 (d)(2) and each state and county have their own statutes which must be followed in preparation for the court hearing. There are a number of requirements leading up to the court hearing, this process is highly detailed and you should be prepared for the entire purchase process to last between 30-90 days, longer at times when the seller resides in an especially active or populous region. Most state statues require the transaction be in the best interests of the seller, and judges certainly will deny transfers deemed not in the best interests of the seller or their dependents.

Legal Audit to Verify the Transaction

Once the court transfer process is complete, we feel it is essential to have an attorney who is an expert in this area of law verify and double check all of the legal work to ensure everything was done properly and completely, to provide the buyer with clear title to the payment stream. This knowledge is unique and specialized and we have an established network of attorneys to perform this due diligence on your behalf. While we are not attorneys, and even if you are, it is unlikely you are an expert in this area of law to be able to verify your own purchase. Therefore we include and insist on the legal audit to verify every transaction before your purchase is completed. The buyer will be presented with an investor closing book, which summarizes the transaction. This typically includes the assigned payments, amortization schedule, court order, stipulation / acknowledgment from the insurance company confirming the new buyer and the original annuity policy.

What is your Comprehensive Retirement Income Plan?

The Secondary Market Annuity concept has been a bright spot for many clients during this challenging, historically low interest rate environment. For those seeking a predictable income stream without market risk, Secondary Market Annuities may be a great addition to your retirement income strategy.

Annuity Genius is Ready to Help!

Is an annuity the right investment for you? We can help you get the best annuity rates. Please contact the experts and financial professionals at Annuity Genius for a free consultation and a speedy quote. (877) 389-3346.