Immediate Payment Annuity

What is an 'Immediate Payment Annuity'

An immediate payment annuity is an annuity contract that is purchased with a single lump-sum payment and in exchange, pays a guaranteed income that starts almost immediately. An immediate payment annuity is especially suitable for retirees who are concerned about outliving their savings. However, one disadvantage is that an immediate payment annuity is irreversible once it has been purchased. This may pose a problem should the annuitant need a large sum to deal with an emergency.

BREAKING DOWN 'Immediate Payment Annuity'

Another large drawback of an immediate payment annuity is that it is terminated upon death of the annuitant. This means that in the event of the annuitant's premature death, the size of the estate left to his or her heirs may be much smaller than it would have been if the immediate payment annuity had not been purchased. Since the annuity payments are terminated upon the death of the annuitant, financial planners do not recommend this type of annuity for retirees who are not in good health.

RELATED TERMS
  1. Annuity

    A financial product that pays out a fixed stream of payments ...
  2. Whole Life Annuity Due

    A financial product sold by insurance companies that requires ...
  3. Income Annuity

    Annuities designed to start paying income as soon as the policy ...
  4. Deferred Payment Annuity

    An annuity where the payments received will start some time in ...
  5. Cash Refund Annuity

    An annuity contract that returns funds back to a beneficiary ...
  6. Years Certain Annuity

    An insurance product that pays the holder a monthly income for ...
Related Articles
  1. Markets

    Explaining Types Of Fixed Annuities

    Learn about this popular retirement tool, its pros and cons and how annuities work to create a guaranteed regular stream of retirement income.
  2. Retirement

    Are Annuities Retirement-Only Investments?

    Learn more about why annuities are generally purchased and the way that they can positively and negatively affect an individual preparing for retirement.
  3. ETFs & Mutual Funds

    Annuities

    What annuities are: Insurance products that provide a source of monthly, quarterly, annual or lump sum income during retirement. Pros: Tax-deferred growth of earnings; no annual contribution ...
  4. Retirement

    How a Fixed Annuity Works After Retirement

    These popular investments can provide a steady stream of income during your retirement years. Here are the details.
  5. Retirement

    Buying Annuities in a Low Interest Rate World

    Learn if buying an annuity makes sense in a low interest rate environment. Also discover the different types of annuities and how interest rates affect them.
  6. Financial Advisor

    Advising FAs: Explaining Annuities to a Client

    Conceptually speaking, annuities can be thought of as a reverse form of life insurance.
  7. Financial Advisor

    Annuities and Baby Boomers: The Pros and Cons

    The pros and cons of annuities that Baby Boomers seeking retirement income need to know.
  8. Retirement

    Annuities Vs. Bonds: Which One Is Better For You?

    Compare the important features of annuities and bonds, and understand which investment vehicle is the better choice based on retirement goals.
  9. Investing

    DIY Annuities: What You Need to Know

    Annuities are attractive because they can give you a stream of income, but they can be tricky to buy.
  10. Personal Finance

    An Overview Of Annuities

    These contracts provide a guaranteed income stream. Learn how they work and their benefits.
RELATED FAQS
  1. What are the distribution options for an inherited annuity?

  2. What are the main kinds of annuities?

    Learn about the four basic types of annuities, and why the different investment and payout options are suitable for different ... Read Answer >>
  3. For what types of financial instruments would I want to calculate the present value ...

    Learn about the types of financial instruments the present value of an annuity calculation is most useful for, including ... Read Answer >>
  4. What happens to my annuity after I die?

    Understand the different types of annuity payment plans and what payments or additional benefits are payable to your beneficiaries ... Read Answer >>
  5. What is an annuity?

    An annuity is a contract between you and an insurance company in which you make a lump sum payment or series of payments ... Read Answer >>
  6. What is the difference between a fixed and variable annuity?

    Understand the difference between fixed, variable and indexed annuities, and read a brief summary of their respective risks ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center