Annuities are a common payment system involving large cash sums, which can include cash awards as well as retirement plans. Annuity options include both fixed and variable rates, which means the payments can be established with either fixed terms, or with terms that are flexible, allowing for the potential for growth similar to investments. When a lump sum is preferable, cashing out is often considered. However, as annuities have value, they are considered an asset, and as with all types of cash out for assets transactions, the value may be detrimentally affected when they are sold.
Fixed terms are the most straightforward of the annuity options, as the terms in regards to amount and date of each payment are established at beginning, and remain fixed throughout the payment period. Variable terms, on the other hand, are a form of investment, as funds are paid into the annuity during an accumulation period, which are then invested throughout the period. While this allows the potential for the value of the annuity to increase, it also results in the varying of the amounts of the annuity payments once the accumulation period has ended. This is because the payment amounts will be dependent upon how well the investments are performing.
Those who prefer a lump sum of cash to the asset value of the annuity often consider a cash out for assets option. With annuities, this means trading annuity payments for a lump sum of cash. While there are numerous financial institutions and investors who are willing to buy annuity payments, the amount they offer for the cash out will be less than the value of the annuity. Offering an equal value will not allow the annuity buyers to benefit from the purchase, and will therefore provide no reason to go through with the purchase. Cashing out annuities may also involve penalties for early withdrawal, as well as additional fees to process the transaction. Court approval may also be required in the states that allow the sale of annuities.
Annuity options involve the choices that are made to determine how a large cash award or other payment, such as retirement, will be paid. A fixed annuity offers set terms, which can provide security as the payments will not change throughout the payment period, while a variable annuity will offer payments based on how the investments made with the funds accumulated in the annuity perform. The cash out option will allow annuity holders to trade their payments for immediate cash, although the value offered will be less than the annuity value, and other fees and penalties may apply. As annuities are considered an asset, this can amount to a decrease in asset value, and so the option should be thoroughly researched before a decision is made.