Selling Annuity Payments

Annuities are financial instruments developed to give a person a steady income over a long time.  They originate from two possible places:  either the buyer gives the bank or financial institution a large, lump sum up front, and then the financial institution holds on to that money over a long period of time, letting it grow and using it for other things, until the buyer becomes old enough, by law, to start receiving little pieces of that lump sum back at a time. The age that the annuity can legally start being paid back is at age 59 and a half. It is also possible to have a settlement from a lawsuit designed to be doled out over a long period of time rather than paid in a lump sum, which has tax benefits when compared to getting the lump sum.  A settlement, however, does not have a penalty attached to a certain age marker, it can last over a much longer period of time.

So basically, the instrument is like a loan to the bank, but the bank is taking a certain amount of time before it has to start paying you back, and when they do, they do it according to the plan that the two of you set out in the beginning.  The point of buying an annuity is because it's a relatively safe investment, especially in times of financial crisis.  If the economy is bad, annuities are a fixed way to get at least some form of income for a little while, which makes it particularly appealing to retirees; sort of a safety net until the economy rebounds.

Selling Annuity Payments

That said, there are some people who have invested in an annuity and, for whatever reason, no longer have any desire to wait for it, or plain just need the money now.  If this is the case, and you are under the required age, withdrawing the money will incur a significant penalty, so there's a bit of a disincentive to do that.  But if you need the money from that or a structured settlement plan from a lawsuit, you can actually arrange for a financial institution to buy up the structured settlement or annuity and just pay you the lump sum right then and there.  The financial institution that issued you the annuity still gets the money and still has the payments attached to you personally - because the bank that originally sells you your annuities are essentially counting on you dying before they have to pay back the whole amount that you gave them in the first place, thereby making them a little bit of money, so selling it to a company would pretty much negate the contract if it didn't remain attached to you.  But the thing about that would be that you would continue to be the person for whom the annuity payments were made for, but the payments wouldn't be given to you, they would be given to the company that you sold your annuities to.  So basically, it's washing your hands of the whole investment, but the investment still exists on the the basis of your existence. 

Make sense?  You can also do this for settlements.  Settlements are usually written less on a we-hope-you-die basis, as they are essentially a punishment for some wrongdoing a company committed.  Since you accepted a certain amount from that company as part of the contractual settlement you reached, you will still be getting that money, even if you die, as long as you work it out in your original contract with the bank you do it with.  So basically, if you want the remainder of your settlement to go to your children or your spouse when you die, you can make sure that's going to happen when you originally negotiate the original settlement.  So basically the same thing can happen with structured settlements.  You can sacrifice the future payments of the settlement for a single, larger lump sum, which is given to you by a third party who then buys up the rest of your settlement.  Selling annuity payments is an efficient way to get your money immediately.

If you're confused as to how they are making money off of this, well, so am I.  For the original bank to sell annuities makes perfect sense, as it's essentially a gamble, and worst case scenario, they pay you as much money as you gave them.  But the beauty of banks is that they have so many of these deals going on that there is essentially a big pool of money that they keep drawing from to make loans with.  These loans are what they make money off of, and if you give them money for a long period of time, they can use the money you gave them for that purpose.  It's kind of like how they make money off of your savings account.