What is an in-force annuity?
With interest rates at historic lows for the past few years, investors are turning to alternative investment opportunities to find better returns. One such product that has seen increased attention is the in-force annuity. In-force annuities, also known as pre-owned or secondary market annuities, offer above average returns that allow investors to meet both short term and long term financial goals.
In-force annuities are becoming popular for two reasons: security and rate of return. An in-force annuity has the benefit of oversight from reputable insurance companies with strong ratings from the largest financial ratings agencies, including A.M. Best, Standard & Poor’s and Moody’s. In difficult financial times, a positive rating can be very helpful in finding safe and secure investment opportunities. In-force annuities also offer a high rate of return in comparison with certificates of deposit or savings accounts.
An in-force annuity is offered for sale by the original investor who wishes to exchange the future payouts of an annuity fund for a lump sum payment. In effect, the seller wishes to trade a larger amount of money in the future for a smaller amount in the present. A buyer can often times acquire this annuity on the secondary market for a fraction of the future value of the investment. When buying and selling an in-force annuity, the buyer and seller (with the help of the court) agree to a price based on the present value of the future payouts of the fund. The buyer also has the advantage of purchasing this secondary annuity without paying broker fees, which have already been paid by the original investor.
Like purchasing any item on the secondary market, an in-force annuity comes with some tradeoffs for the buyer, mainly in terms of the flexibility of the investment. An in-force annuity often features payments over a fixed term at a fixed rate of interest that is set by the original terms of the fund. If the buyer ends up with different financial needs, the terms of the in-force annuity cannot be changed. However, many investors are simply looking for fixed payments over a certain period of time, so these minor drawbacks do not deter most investors who purchase an in-force annuity for the high rate of return. For a conservative investor, these investment vehicles can represent a smart investment for retirement.