Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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How much on the dollar do settlement companies buy out annuity payments?

The amount of money settlement companies will pay for annuities varies slightly depending on the amount of the buy out and how quickly you want the buy out money. But generally speaking, the buy out amount is usually seventy-five cents on the dollar or 75% of your annuity amount.

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The following article provides additional information about annuity buy outs. Be sure to consider all your options before exercising this pricy one.

What is an annuity buy out?

When you see someone on television that just won the lottery and they are standing holding their large, fake check and smiling because they just won a million dollars, you are not seeing the whole picture.

More often, an annuity is an investment vehicle that some puts money into over time, during the accumulation phase. They can then receive payments back on their own investment and the interest gained during the distribution phase.

The whole point of an annuity is to pay out the entire sum in regular payments. This way, the remaining money can be invested so that your future payments can be made. In the million dollar lottery winning scenario, the recipient will only actually receive about half after taxes and fees. The remaining $500,000 will be paid out in increments of about $50,000 a year.

The regular payment of $50,000 is not a lot of money to receive in one year, but if you were to be given all $500,000 in a lump sum, you would be able to do something more such as buy a home. If you want to do this, there are settlement companies that will buy your annuity from you giving you access to a lump sum instead of monthly payments.

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How do annuity buy outs work?

Once you decide a buy out is for you, you have to find a settlement company to work with. You first sign your annuity over to the settlement company so they will begin to receive your monthly payments. They will then give you a lump sum, but, as stated above, there is a price for this. The settlement company will typically pay you 75% of your total annuity. This is how they make their money.

The percentage of the buy out can be as low as 25% and as high as 85%, but the typical buy out is 75%. Things that affect this percentage are the:

  • Amount of money
  • Time frame in which you need the money

A settlement company will charge you more, if they know you want or need the money immediately. Generally speaking, the higher the pay out amount, the higher the percentage you will receive because it means more profit for the company.

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Is an annuity buy out right for me?

Choosing to go with an annuity buy out through a settlement company is a big decision and not one to be taken lightly. As with annuity surrender fees, settlement will cost you. After all, you will be giving up much of your settlement. There are some circumstances, however, when a buy out is a good idea.

  • One reason to go with a settlement is age. If you are older and you feel you will not receive all of your annuity payments before your death and would like to leave the money to your loved ones, a settlement is a good choice.
  • This applies to illnesses as well. If you are suffering from a terminal illness or a debilitating illness and you need the money for medical expense or to leave to your family, a settlement is good option. Some annuities will allow you to leave the payments to a loved one after your death while others will not. It is important to know this before you make your decision.
  • Another reason to get a settlement on an annuity is because you need to make a large purchase. For example, you may be renting a home and purchasing a home would make more sense in the long run. This would be a situation in which making a settlement may be a good choice.

Be sure not to make your decision solely on wanting a large sum of money. Annuities are not designed as quick access to cash. The amount of money you will give up through a settlement should be a large part of your decision.

If you are looking for a settlement company to work with, you can find a quality company online by using an online comparison tool. This type of tool allows you to compare what different settlement companies have to offer and then make your decision.

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