An immediate payment annuity is a contract between an insurance company and an individual, which helps the owner, or the annuitant, get a guaranteed Income almost immediately. This one is also known as a single-premium immediate annuity or an income annuity.
Typically, individuals purchase immediate payment annuities by paying a lump sum to the insurance company. In turn, the insurance company guarantees to pay a regular income to the annuitant as per the terms of the contract.
These payments’ amount is calculated by the insurer on the Basis of varying factors, such as how long the payments will continue, prevalent interest rate and the age of the annuitant. Generally, these payments start within the purchase month.
Annuitants also get to decide how often they would want to be paid, which is known as the mode. While the monthly mode is quite common, annual or quarterly payments are also available. Often, people purchase immediate payment annuities to supplement their retirement income for the rest of their lives.
There is also a possibility to purchase an immediate payment annuity that will offer income for a certain period of time, say 5 years or 10 years. People often buy immediate payment annuities to supplement their other retirement income for the rest of their lives.
It is also possible to buy an immediate payment annuity that will provide income for a limited period of time, such as 5 or 10 years. The payments on immediate payment annuities are fixed for a specific period mentioned in the contract.
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But some insurers may also provide immediate variable annuities that keep fluctuating on the basis of an Underlying Portfolio’s performance, quite similar to deferred variable annuities. Also, another variation here is the Inflation-indexed annuity, also known as the inflation-protected annuity, which reassures an increased payment in line with inflations taking place in the future.
However, one of the possible drawbacks of this payment annuity is that payments generally end when the annuitant dies and the insurance company retains the remaining balance. Thus, in case the annuitant passes away earlier than the anticipated period would not get the worthwhile money out of this deal.
The only point to eradicate this issue is by adding a second person to the contract, which is known as the joint and survivor annuity.