A single premium immediate annuity is for someone who is interested in turning a lump sum of money into a guaranteed income stream. Unlike deferred annuities, an immediate annuity does not accumulate any earnings. An immediate annuity is purchased strictly to provide an income payment on a regular basis (such as monthly, quarterly, semi-annually, or annually).
The income stream provided from an immediate annuity will vary based on the size of the initial contribution, age, gender, and the chosen payout option. One of the biggest advantages of an immediate annuity is it can provide guaranteed income for life.
Single Premium Immediate Annuity Premium Payments
Immediate Annuities, also known as single premium immediate annuities (SPIA), provided a guaranteed stream of income based on a single lump-sum premium payment. The income from an immediate annuity begins within the first year of the annuity company receiving the lump sum deposit.
Single Premium Immediate Annuity Payout Options
When making the decision to purchase a single premium immediate annuity it is important to determine which payout option will suit you best. Based on the combination of how you receive the income and how much, if any, you would like to leave for your beneficiary if you pass away, will affect how much income is generated from the single premium immediate annuity.
Generally, there are five types of single premium immediate annuity income payout options:
- Life Annuity: Provides annuity income for the life of the annuitant. Payments are no longer received after the annuitant passes away.
- Period Certain Annuity: Provides annuity income for a predetermined period of time (such as 10 or 20 years) or term. If the annuitant passes away before the term is over the annuity company keeps the remaining value of the annuity.
- Life With Period Certain Annuity: Provides annuity income as long as the annuitant is alive. If the annuitant passes away before the “period certain” or term, then the designated beneficiary will receive payments for the remaining term.
- Joint and Survivor Life Annuity: Provides annuity income as long as either person named in the annuity is living. Payments are no long made after the second annuitant passes away.
- Joint and Survivor Life With Period Certain Annuity: Provides annuity income as long as both annuitants are alive. If both annuitants pass away before the “period certain” or term, then the designated beneficiary will receive payment for the remaining term.
Single Premium Immediate Annuity Summary
A single premium immediate annuity allows an individual to turn a lump sum of money into a guaranteed stream of income for a specific period of time or their lifetime. Retirees seeking the stability of a guaranteed income will find single premium immediate annuities to be particularly effective. Immediate annuities are not for everyone, and should only be utilized after careful consideration.
