What is Annuity Due?

annuity due refers to the due payment for an annuity. The term is used to define the payment that’s due every month (usually at the beginning of the period). The best example of an annuity due is the rent. Most landlords ask the tenant to pay the rent at the beginning of the month rather than at the end after enjoying the apartment. It is important to note that the annuity due is for the beginning of each period, instead of the end of the month or year.

In other words, all kinds of payments that are due at the beginning will be classified as the annuity payment. These due payments will be considered as an asset as soon as they are received. Those who are supposed to pay the annuity will have to bear the debt liability, after all, they are required to make the periodic payments. Note that the annuity due will show the series of cash inflows and outflows.

Understanding Annuity Due

The person who pays and receives the annuity due is allowed to measure the total value of the annuity. Now, this can be done through the present value calculations. This table features the estimated interest right on the top while the left column will represent the total number of periods. The whole life annuity due is the term used to define the Financial Instrument that’s given by an insurance provider. Now, this financial product requires the company to make monthly and quarterly annuity payments.

Then again, the payment has to be cleared at the beginning instead of at the end of the month. Note that this kind of annuity will offer you the payments for your lifetime, i.e. if you have invested in the long-term annuity, then you will be paid at the beginning of every month or year as long as you are alive. Once the annuity is paid or the annuitant dies, the insurance company can retain the remaining money.

Ordinary Annuity

As mentioned earlier, annuity due payment is not a one-time transaction. It is rather the recurring issuance that is paid at the beginning of the month, quarter, or year. The main difference between the annuity due and ordinary annuity is that the latter is paid at the end instead of the beginning of the period. All kinds of contracts, as well as agreements, have the annuity due clause.

It isn’t only the annuity payment that’s critical, but the timing of this transaction is also vital. It goes without saying that the annuity due payments are quite beneficial for the recipient. After all, they have the opportunity to invest the funds they receive at the beginning of each period for investments. The person who’s liable to pay the annuity uses ordinary annuities. That’s because they lose out on the opportunity to use the funds for investments. The examples of the annuity due are the rent, phone bills, car payments, mortgages, loans, and the utility bills that you are supposed to pay at the beginning of the period.