Don't want that annuity anymore? You can sell it
By Vanessa Richardson • Bankrate.com

Stuck with an annuity you don't want or need anymore? Now you can cash it in and put the money to whatever use you want. A secondary market for annuities is steadily growing, letting investors sell their policies, sometimes for more than their insurer would give them.

"By our estimates, there are between $50 billion and $100 billion of annuities that could be sold into the secondary market annually," says Michael Vaughan, a managing director at J.G. Wentworth, a firm that specializes in buying and selling on the annuities market. It offers services in 47 states through banks, annuity broker-dealers and independent insurance agents.

The secondary market has actually been in place for the past 15 years, but Vaughan says individual seller interest has picked up during the past two. "People are realizing this market gives them an opportunity for more control over their annuities."

In simple terms, an annuity is a contract between you and an annuity issuer, typically an insurance company. You pay money to the annuity issuer, who then pays the principal and earnings back to you or to a named beneficiary. The type of annuity you own determines whether your money earns a fixed amount or an amount that depends on the equities in which the annuity is invested. At a designated time, known as the maturity date, the insurance company starts sending you regular distributions from the annuity's account over time, or you can withdraw it in a lump sum.

Annuities are typically used to provide retirement income and, according to the National Association of Variable Annuities, new annuity sales now top $200 billion per year. The annuity's oft-cited advantage is that money grows tax-deferred until withdrawal, but it is still criticized by some financial experts as being too complex to understand and lacking liquidity and flexibility. A 2003 American Council of Life Insurers', or ACLI, survey of 460 annuity holders found that more than one in four worried they would be stuck with their annuity for life.

Why sell an annuity?
That's no longer the case, thanks to the secondary market. Annuities are packaged into asset-backed securities and sold typically to big institutional investors. Any annuity is up for grabs, except for those held in retirement-specific 401(k), 403(b) or IRA accounts. Selling holds the most appeal for annuity owners who want another investment for tax reasons or better returns, who inherited annuities from older relatives, who need a quick stream of cash due to financial emergencies and other significant life changes, or who simply realized that buying an annuity was a mistake.

The secondary market is also good for those who only want to sell part of their annuity. Take Jack, a hypothetical 66-year-old man who owns a single-premium annuity guaranteed to pay $7,865 per month for 20 years. If he dies before the term ends, the remaining payouts go to his children, who as the heirs would be taxed at their current income tax rate on the annuity's accumulated interest. Jack decided to shift his focus from retirement income to wealth transfer and avoid some of the tax penalties. He sold $4,000 of his monthly payments over 16 years, totaling $776,000. By selling it to a secondary investor, Jack pocketed a lump sum of $448,910. He invested in a life policy with a face value of $1.66 million, which goes to his children tax-free, and he still retains a monthly payment of $3,865 from the annuity portion he still owns.