What is an Immediate Annuity?
An immediate annuity pays you an income stream immediately. People often purchase immediate annuities with a single deposit or convert their deferred annuities during their retirement years when a consistent stream of income is desired.
The Income Period
During the income period, you will begin to receive income payments comprised of the principal you have paid in, plus any earnings you have accumulated over the years. Each income payment consists of principal and interest. This allows the taxable amount to be spread out over the income period.
Most people convert their deferred annuities to immediate annuities in their retirement years, when they are likely to be in a lower tax bracket. When purchasing an immediate annuity, you can tailor it to fit your personal needs, which includes choosing a payment option. You also choose the frequency of payments (monthly, quarterly, semi-annually, or annually).
Income Payment Options
Period Certain: You (the annuitant) can select to receive periodic payments for a specified period of time. The contract value and the length of the period you select determine the payout amount.
Life Only: Periodic payments will be based on your (the annuitant) life expectancy and the contract value. This option can pay you an income that can’t be outlived regardless of your original annuity value. In the event of death, the annuity payments cease.
Life with Period Certain: You will receive periodic payments throughout your lifetime. Additionally, you have the option to add a designated period (usually 5 years or more) whereby the insurance company will guarantee the payments to your beneficiary if you die within the designated "period certain." Example: A "life with 10 years certain" option pays you (the annuitant) for a lifetime. If the annuitant died in the second year, then the company would pay the beneficiary for the balance of the 10-year certain, or 8 years. Payments would then stop.
Life with Refund Annuity: Periodic payments will be received for the annuitant’s lifetime. If the annuitant should die before receiving an amount equal to the original premium deposit, the payments will then go to the beneficiary until the total payments made (to both the annuitant and beneficiary) equal the amount equal to the original deposit.
Joint and Survivor Annuity: The annuitant and their spouse will receive payments for their life. Payments cease at the second death. You can attach a "period certain" to this option, or a reduction to the surviving spouse at the first death. Example: A "Joint and 50% Survivor" option would pay half of the income payment to the surviving spouse at the first spouse’s death.
Last Updated: 9/23/2012 10:05:00 PM