How to Convert an Annuity to a Lump Sum

by Kimberlee Leonard ; Updated July 27, 2017

Items you will need

  • Annuity statement
  • Annuity contract
  • Internet connection
  • Phone

An immediate annuity is a type of annuity paying you an income. You are getting regular annuity payments but now want to cash out of the annuity to access a lump sum for a major purchase like a home. The annuity may have resulted from a lottery winning, structured settlement or annuitization of a deferred annuity. Regardless of the origin, once you start income payments, you can't change your mind and say you want to cash out. However, you can get a lump sum payment by selling the annuity payments through a structured settlement broker.

Step 1

Find a structured settlement broker. You may ask your financial or tax adviser for a referral or conduct an internet search for several candidates.

Step 2

Call the insurance commissioner in the state you live in and make sure that the settlement broker is licensed to perform these transactions. The National Association of Insurance Commissioners maintains a state jurisdiction map with contact information for your convenience at NAIC.org. Ask the representative on the phone how you verify a license of a life insurance settlement broker and follow the instructions provided.

Step 3

Meet with the settlement broker you choose to work with. Provide him with a copy of your annuity statement and contract so he can review the terms of your income annuity.

Step 4

Review his proposal, perhaps even discussing it with a tax adviser to make sure it is a fair offer. Settlements are often of pennies on the dollar of what the overall income value of the annuity is.

Step 5

Sign the contract that assigns the annuity contract to the new owner for the lump sum payment less any broker fees. This is irrevocable, so be sure you are ready to cash out.

Tips

  • You may only receive a third of what your annuity total value is. Only you can decide if cashing out for a lump sum is worth the loss of the entire annuity value.

Warnings

  • Work only with a settlement broker who has all the fees and costs itemized including his commission for the transaction; be leery of anyone trying to hide those numbers.

About the Author

With more than 15 years of professional writing experience, Kimberlee finds it fun to take technical mumbo-jumbo and make it fun! Her first career was in financial services and insurance.