Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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An immediate annuity refers to the fact that, after paying in the agreed-upon amount, your benefit is returned to you as a lump sum, rather than in periodic payments. The term annuity simply means a series of periodic payments. The payments start whenever the annuity commencement date passes.

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The term annuity refers to any type of fixed payments that are limited by time period. In finance, the term is very common. The word might also be used to refer to regular deposits to an account, or a home mortgage payment, or even monthly insurance premiums.

When referred to in the context of a contract, this implies that an insured person will enter into an annuity contract with a life insurance company. The payee makes regular payments to that company with the understanding that the money will later be sent back once the agreed on amount has been paid.

Advantage of Annuities

The advantage of an annuity contract is obvious. At some point later in life, a person can guarantee the distribution of his or her income time for a specific period of time, say, the retirement years. The contract will either run out until the end date or until the individual dies. This financial contract guarantees that, provided all conditions are met, the individual will receive that money back. There are several different types of annuities.

  • Regular payment annuities- give monthly payouts of a pre-determined or market value amount.
  • Immediate payment annuities- give a lump sum payment.

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Common Situations Involving Immediate Annuity

One common reason you might want such a contract is if you are at retirement age. Many people today are living longer, sometimes so long that they outlive their retirement savings. Unable to live on Social Security alone, and not to mention living with a growing inflation rate thanks to a spiraling economy, these seniors might turn to an immediate annuity plan. This contract would provide them with either a lump sum or recurring income payments. These contracts are practically guaranteed to surpass the person’s remaining life.

How is this possible and what are the cons to this pro? Immediate annuities are not like regular retirement annuity plans. Immediate annuities are meant to help someone who is currently in retirement and short on funds. These contracts are purchased with large lump sums of money.

The amount of money that the retiree receives will depend on his or her life expectancy as well as the amount of the policy. The insured will receive monthly payments until the end of his or her life.

A single payment immediate annuity (SPIA) can allow an older person to use accumulated funds from a CD or 401k for this investment. Yes, a person who is currently retired might find it beneficial to pay the lump sum and then immediately receive the money back over a period of time. In a way, this is a self-financed pension fund. Payments are immediate and usually start with 30 days or paying the lump sum.

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An Ideal Plan for Conservative Investors

Putting a percentage of your savings account into annuity may be a safer move than living off your savings account as it is. Many retirees fear that they may live past their money, and so this type of contract can offer peace of mind.

What makes these contracts desirable? It is not only the inclusion of a beneficiary, but also the fact that this money is guaranteed by the assets of the insurer. These funds are also tax-efficient. This type of contract is recommended for persons who want to carefully manage and plan their future income, and at the same time, protect their assets for the long-term. It is an ideal strategy for anyone who doesn’t want to take the risk of investing the money elsewhere.

Remember that this contract depends upon your good health and longevity. Unless your policy lists a beneficiary, and most annuities do not, all of that money will be lost upon your death as the insurer becomes your beneficiary. Therefore, exercise caution when it comes to adding riders to the policy. Persons who benefit from immediate annuities are actually outliving their projected lifespan—and good for them! Why not look for online annuity quotes by entering your zip code now?