Immediate Payment Annuity

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DEFINITION of 'Immediate Payment Annuity'

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.

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RELATED FAQS
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    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
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    Non-qualified variable annuities are tax-deferred investment vehicles with a unique tax structure. After-tax money is deposited ... Read Full Answer >>
  3. What are the maximum Social Security disability benefits?

    The maximum Social Security disability benefit amount for a single eligible person in 2015 is $1,165 per month, but you can ... Read Full Answer >>
  4. Can a variable annuity be rolled into an IRA?

    You can roll qualified variable annuities, such as other qualified retirement plan accounts, into a traditional IRA. Non-qualified ... Read Full Answer >>
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    Variable annuities are insurance contracts that provide tax-deferred growth of assets that can later generate a guaranteed ... Read Full Answer >>
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