Income Annuity

DEFINITION of 'Income Annuity'

Annuities designed to start paying income as soon as the policy is initiated. The income annuity is annuitized immediately, although the underlying income units may be in either fixed or variable investments. As such, the income payments may fluctuate over time.

An income annuity is typically purchased with a lump sum payment, often by people who are at or near retirement.

Also known as an "immediate annuity".

BREAKING DOWN 'Income Annuity'

Investors seeking income annuities should have clear picture of how much income will be received and for how long. Most annuities pay out until the death of the annuitant and some pay out until the death of spouse. Although the insurance product may be annuitized immediately, variable investments can allow for some principal protection by participating in equity markets.

Even if all income units are in fixed investments, there may be a provision allowing for a higher return if a specific benchmark index performs extremely well.


RELATED TERMS
  1. Years Certain Annuity

    An insurance product that pays the holder a monthly income for ...
  2. Annuity

    A financial product that pays out a fixed stream of payments ...
  3. Variable Annuitization

    An annuity option in which the amount of income payments received ...
  4. Immediate Payment Annuity

    An annuity contract that is purchased with a single lump-sum ...
  5. Whole Life Annuity Due

    A financial product sold by insurance companies that requires ...
  6. Annuitization

    The process of converting an annuity investment into a series ...
Related Articles
  1. Bonds & Fixed Income

    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. 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 ...
  3. 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.
  4. Retirement

    How a Variable Annuity Works After Retirement

    These investments can provide extra income after you retire. Here’s a guide to when and how you will receive the payout.
  5. 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.
  6. 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.
  7. Bonds & Fixed Income

    How to Use Annuities for Retirement Income

    We explain how to use annuities for guaranteed income in retirement.
  8. Home & Auto

    An Overview Of Annuities

    These contracts provide a guaranteed income stream. Learn how they work and their benefits.
  9. Investing

    Advising FAs: Explaining Annuities to a Client

    Conceptually speaking, annuities can be thought of as a reverse form of life insurance.
  10. Retirement

    Who Benefits From Retirement Annuities

    Annuities guarantee some degree of fixed income in retirement. But is the security worth the fees and less favorable tax treatment? How to decide.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  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 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 >>
  5. What are the risks of annuities in a recession?

    Distinguish between the most common types of annuities, and understand which types of annuities pose the most risk during ... Read Answer >>
  6. Are variable annuities tax deferred?

    Learn how variable annuities are tax-deferred, but also understand some of the less advantageous tax implications from purchasing ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center