An immediate annuity exchanges a lump-sum premium for payments that generally start within one year, with terms that govern income and liquidity.
An immediate annuity is an insurance contract purchased with a lump-sum premium that begins scheduled income payments soon afterward, generally within one year. It is often called a single-premium immediate annuity (SPIA) when one premium funds the contract.
An immediate annuity is mainly a payout product, not a liquid savings account. The buyer selects a payment option, and the insurer promises to pay according to that option. The payment can be fixed or variable and can last for life, for two lives, or for a stated period.
The purchaser pays a premium and selects:
The insurer prices the payment using the selected guarantees and its assumptions. A life-only contract may pay more per month than a joint-and-survivor contract because the expected payment period is shorter. A contract with a 10-year period certain may pay less than life only because the insurer must continue remaining guaranteed payments after an early death.
| Option | Income duration | Beneficiary or survivor result | Main use |
|---|---|---|---|
| Life only | Annuitant’s lifetime | Usually no payment after death | Maximize income for one covered life |
| Joint and survivor | Through the second covered lifetime | Survivor receives all or a stated percentage | Protect two-person household income |
| Fixed period | Set number of years | Remaining payments generally continue to beneficiary | Match a defined income horizon |
| Life with period certain | Life, with a minimum period | Remaining certain-period payments continue after early death | Balance lifetime income and early-death protection |
| Life with refund | Life, with contract-defined refund protection | Beneficiary may receive unrecovered premium under the formula | Limit early-death loss to heirs |
The beneficiary outcome should be read in the contract, not inferred from the product name.
Assume a 67-year-old is comparing hypothetical fixed immediate-annuity quotes for a $250,000 premium:
If the annuitant lives for 25 years, both options continue for life, but the life-only option pays more each month. If the annuitant dies after three years, the life-only payments generally stop, while the second option continues its remaining guaranteed payments to the beneficiary for 12 years.
The lower second payment is the cost of additional beneficiary protection. These amounts are purely illustrative and are not current quotes or estimates of available market pricing.
| Feature | Immediate annuity | Deferred annuity |
|---|---|---|
| Primary purpose | Begin income soon | Accumulate value or defer income |
| Premium | Commonly one lump sum | One or multiple premiums may be allowed |
| Income start | Generally within one year | Later contract date |
| Liquidity | Usually limited after purchase and election | May have withdrawals, subject to charges and rules |
| Main risk focus | Inflation, insurer, liquidity, payout election | Fees, crediting or investment performance, surrender period, insurer |
A deferred contract can later be annuitized, but it should not be assumed to produce the same quote as purchasing a new immediate annuity.
Annuities are not insured by the FDIC or SIPC. State insurance guaranty associations may provide limited protection if an insurer fails, but coverage is not a substitute for reviewing the issuing insurer and state rules.
Compare quotes using one specification sheet:
Also compare the annuity with keeping a liquid portfolio, delaying the purchase, or annuitizing only part of available assets. Those are comparisons, not universal recommendations.
This article is educational and is not individualized investment, insurance, tax, or retirement advice.