Lump Sum vs. Annuity
For most people the language of finance is foreign, to say the least. However, this does not have to be the case. At least involving annuities, as compared to lump sum payments, the explanations are fairly straightforward and easy to understand, once you get past the initial confusion.
An annuity is a type of investment in which money is deposited that later pays out in installments. These periodic payments are usually monthly, quarterly, or yearly and are most often a predetermined amount. Annuities are usually bought for one of two purposes — either by an individual to provide an income for themselves later in life or by an insurance company for the individual as part of a structured settlement. The idea behind setting up a structured settlement or annuity as part of the resolution of a lawsuit is to prevent the individual from quickly spending their winnings frivolously. Instead the annuity money is held under tight control and is only paid out in these predetermined installments. Of course, if the individual comes to the conclusion they want their money early, there is little recourse for them to do so.
On the other hand, a lump sum payment is just that — a one-time payment instead of the money being paid out in installments. Many people believe a lump sum payment is a bad idea because it provides little security; an individual may spend the money quickly and in whatever manner they see fit. Of course, someone without the financial control to save or invest large sums of money could find themselves in a bad position. However, most people would prefer at least to have some control over their money regardless of their financial savvy.
After you have entered into an annuity, you become somewhat stuck with the payment schedule, unless you decide to sell the annuity. There are companies and individuals that specialize in the liquidating of annuities for lump sum payments, which is ideal for someone that has come to the conclusion they need money quickly and are no longer happy with receiving payments.
Should an annuity owner decide he/she wants to liquidate, the first step is finding an annuity buyer to deal with. Once this is done, it is simply a matter of working through the process to transform an annuity into a one-time lump sum payment of cash, which is very useful to someone that has found themselves in need.