Pre-owned annuities: low risk, high return

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Elliot Raphaelson

Most readers are looking for safe investments with a high rate of return. One investment that can meet these objectives is a pre-owned annuity.

Many people own the rights to annuities that guarantee monthly income, sometimes for terms of up to 50 years. Some of these owners are willing to sell the legal right to their structured monthly payments, at a discount, for a lump-sum payment.

There are companies that specialize in this field and act as intermediaries, for a fee, arranging to sell these annuities to individuals who are willing to buy them for a fixed price in order to obtain a guaranteed monthly income for the remaining term of the annuity.

A typical seller is somebody who was injured in an accident and received an annuity settlement from an insurance company. That person may prefer to have a large lump sum instead of a stream of annuity income for, say, 30 years. To get that lump sum, they must be willing to give a discount to the buyer.

Each of the original annuity terms — the interest rate, the scheduled payment date and the payment amount — remains fixed for the duration of the annuity.

So, in order to structure a reasonable offer, one needs to consider the balance of the future payments, the established interest rate associated with the annuity, and the number of payments remaining. These help determine the present value of the annuity, which can then be priced for purchase.

In the end, the original owner receives his lump-sum payment, the intermediary receives a fee, and the new owner receives an attractive rate of return (in comparison to other options available today) for the remaining term of the annuity.

Rate of return can be high

One of the major advantages of purchasing a pre-owned annuity is that the discount can be significant.

These annuities are paid by major insurance companies and other organizations with excellent credit ratings. For long-term annuities, such as 30 years or longer, the current rate of return is more than 6 percent.

You can see a sample of these offerings at (1-866-866-1999). Some of these offerings are for as long as 50 years, and some are as short as two or three years. Generally speaking, the longer the duration, the higher the rate of return.

For example, checking one day in December, I found these offerings (listed are the duration of the annuity, the rate of return, and the paying company):

  • 50 years, 6.75 percent, MetLife
  • 40 years, 6.5 percent, Continental Life
  • 30 years, 6.5 percent, Prudential

Only a limited number of offers are made each week, and attractive offerings do not stay on the market very long.

If you are interested in a specific offering, you will be asked to make a down payment, which generally is 5 or 10 percent of the total amount due. Once your offer has been approved (it may take a week or so for approval), you will be asked for the remainder of the total payment.

Some shortcomings

What are the disadvantages associated with this product? In my opinion, the major one is that this kind of annuity is not a liquid investment. You cannot assume that you will be able to sell it. There may be exceptions, but you should assume that you will have to keep it for the rest of the life of the annuity.

A second disadvantage is that interest rates may increase in the future. You will not be able to renegotiate the interest rate of your annuity. Assume that whatever payment you receive is the payment you will receive for the length of the annuity.

If you decide to purchase this type of annuity, you should discuss with your attorney the desired form of ownership. It is advisable to establish ownership in a way so that it will not be probate property. In that way, income from the annuity will be continuous for your beneficiaries after your death.

Overall, pre-owned annuities are an attractive alternative for investors willing to make a long-term or intermediate-term investment. They are low-risk investments with a high rate of return.

Settlement Asset Management, which is an intermediary offering these annuities, has an excellent webpage ( that discusses this product in detail.

Elliot Raphaelson welcomes your questions and comments at
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