What Is an Immediate Payment Annuity?

An immediate payment annuity is a contract between an individual and an insurance company that pays the 澳洲幸运5官方开奖结果体彩网:annuitant a guaranteed income starting almost immediately. It differs from a 澳洲幸运5官方开奖结果体彩网:deferred annuity, which begins payments at a futไure date chosen by the annuity owner. An immediate payment annuity is also known as a single-premium immediate🌠 annuity (SPIA), an income annuity, or simply an immediate annuity.

How an Immediate Payment Annuity Works

Individuals typically buy immediate payment annuities by paying an insurance company a lump sum of money. The insurance company, in turn, promises to pay the annuitant a regular income, according to the terms of the contract. The amount of those payments is calculated by the insurer, based on such factors as the annuitant's age, prevailing interest rates, and how long the payments are to continue.

Payments typically begin within a month o💃f purchase. Annuitants can also decide how often they want to be paid, known as a mode. A monthly mode is most common, but quarterly or annual pa🔯yments are also an option.

People often buy immediate payment annuities to supplement their other retirement income, such as 澳洲幸运5官方开奖结果体彩网:Social Security benefits, for the rest of theiꦕr lives. It is also possible to buy an immediate payment annuity that will provide income for ꦡa limited period of time, such as five or 10 years.

The payments on immediate payment annuities are generally fixed for the period of the contract. However, some insurers also offer 澳洲幸运5官方开奖结果体彩网:immediate variable annuities that fluctuate based on the performance of an underlying portfolio of securities, much like deferred 澳洲幸运5官方开奖结果体彩网:variable annuities. Still, another variation is the 澳洲幸运5官方开奖结果体彩网:inflation-protected annuity, or inflat💙ion-indexed annuity, which promises to ൲increase payments in line with future inflation.

Special Considerations

One potential drawback of an immediate payment annuity is that payments typically end upon the death of the annuitant, and the insurance company keeps the remaining balance. So an annuitant who dies earlier than expected may not get their money's worth out of the deal. On the other hand, an annuitant who lives longer may come out ahead.

There are some ways to get around this problem. One is by adding a second person to the annuity contract (referred to as a joint and survivor annuity). It is also possible to buy an annuity that guarantees payments to the annuitant's beneficiaries for a 澳洲幸运5官方开奖结果体彩网:certain period, or that will refund the annuitant's principal if the annuitant dies early (known as a 澳洲幸运5官方开奖结果体彩网:cash refund annuity). Such provisions cost extra, however.

Once purchased, an immediate payment annuity cannot be canceled for a refund. This may pose a problem should the annuitant need the money in a financial emergency. For this reason, it's smart to have an 澳洲幸运5官方开奖结果体彩网:emergency fund set asidꦺe for unforeseen needs before deciding how much money will be placed in the annuity.

The Bottom Line

With an immediate payment annuity, you pay the insurance company and then begin receiving income relati✱vely quickly. This income can come at vℱarious intervals, from monthly to annually. A deferred annuity, in contrast, holds off on payments until a future date.