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Wednesday, May 03, 2006 

Leave unwanted annuities behind

NEW YORK -- Much ink has been splashed lately over the high-pressure tactics being used by insurers and agents to foist annuities on older Americans who may not need them. Now there's a fast-rising secondary market for people looking to cash in annuities for a lump sum settlement.

Is this the perfect escape hatch for people locked into an annuity they don't want or yet another way for brokers to take advantage of seniors in dire financial straits?

With an annuity, the buyer pays an insurance company a sum in return for regular payouts over a defined period. With more and more people owning or inheriting annuities, you can bet more and more people find themselves in a situation where they want out.

Most annuities charge "surrender" penalties of up to 20 percent if you want to withdraw the principal before a set period has expired. The penalty generally decreases with time.

Those fees have drawn a rash of complaints in recent years, especially from seniors, said Jim Poolman, who chairs the National Association of Insurance Commissioners' life insurance committee.

Into this muddle has stepped J.G. Wentworth, a company that got its start buying structured payments from court awards and the like. It now has 70 percent of the market for annuity settlements.

The company offers anywhere from 7 percent to 11 percent below the annuity's total value as a lump sum, said Michael Vaughan, managing director of the company's annuity program.

Whether that is a good deal depends on the particulars of your situation, Vaughan said. He said his company offers people flexibility and perhaps a better deal than surrendering to the insurance company.

In other cases, it may be the only deal an annuity owner can get.

And whereas agents who sell annuities have an incentive, in the form of commission, to sell large policies, buying annuities for lump sums is the opposite. Agents collect a cut of the price -- Vaughan won't say how much -- so their incentive is to get clients the most money for their annuity.

Prices are set by J.G. Wentworth, not the agent, and the discount from the full value is prominently displayed, says Vaughan.

The market is new and growing and, Poolman says, no red flags have been raised about annuity settlements so far.

Still, annuities are complicated to begin with and selling yours can have significant tax implications. So do your homework. The cash may come easy but you don't want to make a bad situation worse.


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