Insurance Annuities

Written by Michael Federico
Bookmark and Share

Insurance annuities are paid out for investment products on a specific schedule for a specific amount of time. People who have won injury or wrongful death cases will often receive insurance annuities. Many retirement investments will be paid out as annuities, as well.

Retirement investments and other insurance annuities usually enjoy tax deferral on growth, but not on contributions. This tax break allows people to keep more of the true settlement. This has given many people the incentive to accept annuities as opposed to receiving settlements in one lump sum.

Receiving Tax Breaks when Selling Insurance Annuities

It is not possible for insurance companies to alter annuities. Once a payment schedule is put in place, the insurance company cannot change the amount of money a person receives or the time in which they will receive that money. However, a person can sell his future insurance annuity payments to a settlement broker.

In 1999, the IRS created the "Private Letter Ruling." The ruling states that those who sell future periodic payments in a structural settlement for a lump sum will still enjoy the same tax breaks. This means that a person can sell off payments without taking an extra hit. While the broker will not pay the full amount for a future payment, the seller will not lose additional money on taxes. This has made selling insurance annuities a safer and smarter practice than it was in the past.


Bookmark and Share