Immediate payment annuities also called Single Premium Immediate Annuity (SPIA). In the simplest words put together, is a deal between an individual and an insurance company that pays the owner, or technically called annuitant, a guaranteed income starting almost immediately. An immediate annuity is similar in structure to a pension plan, as in, you give a company (life insurance or investment company) a lump sum of cash in exchange for steady cash flow starting disbursement immediately.
Flexibly, buyers can choose the term from monthly, quarterly, or annual income. In general, payments are fixed for the term of the contract with minute adjustable features. Like every other annuity, it also provides customization according to the annuitant’s needs. An immediate payment annuity is intended to create lifelong income streams, but some only pay for a set period.
How does an immediate annuities work?
As the name goes, an immediate payment annuitant pays the insurance company a lump sum of money. The insurance company, in return, promises to pay the annuitant a regular income, according to the terms of the contract. When a buyer uses a Single Premium Immediate Annuity, in short SPIA, you deposit a lump-sum of cash, also called as premium payment with an insurance company to which the company makes regular income payments to the buyer.
Mostly, payments begin within a month of purchase. Annuitants have the liberty to even decide how often they want to be paid, also known as a mode. In maximum cases a monthly mode is most commonly preferred. But quarterly or annual payments are also an available option, though preferred least as compared to monthly. As the other modes take time to revert, monthly is found to be most applicable in all the cases.
Is an immediate annuity right for you?
Immediate annuities can be an excellent & diligent tool to create a reliable retirement income if both the pros & cons are in favor of your situation. As it functions immediately, this is also taken as a risk-management tool. It is useful for the retirement plans, which is further effective, especially when combined with other types of retirement assets.
This type of annuity works most appropriately for already retired people looking for real peace of mind regarding their retirement income with considerable interest of not outliving their assets. They have social security which is kind of like a pension. Pre-retirees and other most people who don’t need the money right away aren’t preferably advised immediate payment annuity. If you’re one of these, you’re mostly advised to opt for a deferred annuity which delays payment by several years but also makes a higher guaranteed monthly payment allowing you to exercise some profit plus stability.
The Bottom line
Immediate payment annuity is a great deal, preferably for the retired people in consideration with its immediate disbursement nature. Overall, other normal annuitants aren’t seen taking this product much as it isn’t much in favor of their situation, likewise.
