Immediate Payment Annuity

AAA

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.

INVESTOPEDIA EXPLAINS '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. Split-Funded Annuity

    A type of annuity that uses a portion of the principal to fund ...
  3. Deferred Annuity

    A type of annuity contract that delays payments of income, installments ...
  4. Variable Annuity

    An insurance contract in which, at the end of the accumulation ...
  5. Annuitant

    1. A person who receives the benefits of an annuity or pension. ...
  6. Annuity Due

    An annuity whose payment is to be made immediately, rather than ...
RELATED FAQS
  1. To what extent are utility stocks affected by changes in interest rates?

    Utility stocks are definitely subject to interest rate risk and can be significantly impacted by changes in interest rates. Competition ... Read Full Answer >>
  2. What is the difference between term structure and a yield curve?

    There is no difference between term structure and a yield curve; the yield curve is simply another name to describe the term ... Read Full Answer >>
  3. Why is term structure theory of importance to economists?

    The term structure theory, also known as the term structure of interest rates, is important to economists because it lets ... Read Full Answer >>
  4. Where can I find year-to-date (YTD) returns for benchmarks?

    Benchmarks are securities or groups of securities against which investment performance is analyzed. Examples of popular equity ... Read Full Answer >>
  5. Is Social Security Income a perpetuity?

    Because Social Security income does not continue indefinitely, it cannot be classified as a perpetuity. What Is a Perpetuity? A ... Read Full Answer >>
  6. What is the effective interest method of amortization?

    The effective interest method is an accounting practice used for discounting a bond. This method is used for bonds sold at ... Read Full Answer >>
Related Articles
  1. Retirement

    Immediate Annuities: More Income and Lower Taxes

    These instruments may shed their bad rap to bring you a hefty tax break.
  2. Retirement

    5 Ways To Fund Your Retirement

    Generating income without going to work tends to be a murky concept. Find out how it works.
  3. Investing Basics

    Calculating The Present And Future Value Of Annuities

    At some point in your life, you may have had to make a series of fixed payments over a period of time - such as rent or car payments - or have received a series of payments over a period of time, ...
  4. Bonds & Fixed Income

    Passing The Buck: The Hidden Costs Of Annuities

    These may look like good retirement vehicles, but beware of the fees buried in the fine print.
  5. Retirement

    Weave Your Own Retirement Safety Net

    Build savings to support yourself in case pension plans and Social Security fall through.
  6. Options & Futures

    Getting the Whole Story on Variable Annuities

    Variable annuities are another way to save money tax-deferred - but don't jump in blindly!
  7. Retirement

    Annuities: How To Find The Right One For You

    Fixed, variable and indexed annuities offer different features. Find out which one fits your needs.
  8. Options & Futures

    Lifetime Income Annuities: The Instant Pension Plan

    If you are looking for a retirement play with a guaranteed structure payout, lifetime income annuities could be the answer.
  9. Options & Futures

    Immediate Annuities: Guaranteed Payout At A Price?

    This vehicle can have very low, or even negative, rates. Find out when it pays to invest.
  10. Options & Futures

    Break Out Of Annuity Prison

    Annuities offer security but also lock up your cash. The secondary market could be your key.

You May Also Like

Hot Definitions
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  2. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  3. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  5. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  6. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!