Can an Immediate Annuity Annuitant Sell the Annuity?

Immediate annuities are irrevocable insurance contracts that provide the annuitant with monthly income. In some circumstances, annuitants can sell these contracts or some of the remaining payments to other investors on the secondary investment market. These sales are not permissible in all states and even in states where these sales are legal, other restrictions exist.

How Immediate Annuities Work

An immediate annuity contract owner makes a single purchase premium payment to fund the annuity. The insurance company selling the contract immediately annuitizes the contract, which means turning the lump sum into an income stream designed to last for a certain period of time. The contract holder can choose from a variety of different payment options which include 10 years of guaranteed payments, lifetime payments and payments based on a minimum dollar amount. The shorter the payment term, the larger the payments.

Selling an Annuity

The Internal Revenue Service does not allow immediate annuity contract holders to sell annuities that are classified as retirement annuities. This means annuities designated as Roth individual retirement annuities or traditional IRA annuities, as well as annuities holding other retirement funds, are non-transferable. However, annuitants can elect to sell non-qualified annuities that do hold non-retirement funds in many states. The contract owner usually receives a lump sum payment and the buyer receives some or all of the annuitants remaining monthly payments.

Restrictions

Basic immediate annuities provide the annuitant with payments for life and if the annuitant dies within a few months of buying the contract, the insurance firm keeps all of the remaining money. Annuitants owning basic life annuities cannot sell the contracts because the contracts offer no defined benefits since no one knows how long the annuitant will live. Annuitants can sell immediate annuities that offer lifetime payments if the contract has a provision to continue payments for a set number of years after the annuitant dies. Normally these payments go to an assigned beneficiary, but if the annuitant sells it the payments go to the buyer instead.

Other Considerations

Immediate annuities are irrevocable, but the purchaser can get a full refund in states that have a free-look provision. Generally, this provision allows contract holders to cancel contracts without penalty within 30 days of purchase.

People who sell immediate annuities often receive less for the annuity then they would have received if they had kept it. Annuity sales are legally complex and buyers typically only agree to buy annuities if they can buy the contracts for a discount price.

References

• Kiplinger: Buy a Pension With an Immediate Annuity
• "The Washington Post": Immediate Annuities Can Help Retirees Offset Market Losses
• Bankrate.com: Immediate Annuities: Do it Yourself Pensions
• Bankrate.com: Buying a Retirement Annuity
• Bankrate.com: don't Want an Annuity any More? You Can Sell it
• Bloomberg Businessweek: Annuity Exit Strategies

Resources

• Kiplinger: Lock in Your Retirement Income