Immediate Annuities


What is an Immediate Annuity?

An annuity purchased with a single premium on which income payments begin within one year of the contract date. With fixed immediate annuities, the payment is based on a specified interest rate. With variable immediate annuities, payments are based on the value of the underlying investments. Payments are made for the life of the annuitant(s), for a specified period, or both (e.g., 10 years certain and life).


Things to Consider

While an immediate annuity can remove market risk from your returns, there are other risks to consider when deciding if an immediate annuity is for you.

  • An annuity’s “guarantee” is only as strong as the insurance company that issues the annuity. There may be state guarantees in the event of an insurance company’s failure, but annuities are not guaranteed by the FDIC, SIPC or any other federal agency if the insurance company that issues the contract fails.
  • Payments in an immediate annuity typically do not have cost-of-living adjustments to keep pace with inflation, so the value of the money you receive in your payments may decline over time. Annuities with inflation protection can be purchased but the cost, in general, is significantly higher.
  • It may be difficult to get your money back once you pay the premium to the insurance company. Even if you only receive a few payments under an immediate annuity contract, the insurance company may not be obligated to continue payments to your spouse or refund your premiums to your estate.
  • If there are changes to your fixed annuity and you want to withdraw your money early, you could incur surrender charges that cut into your returns.

Immediate Annuity Regulation

Immediate annuities are regulated by state insurance commissioners. Be sure to check with them to confirm that your insurance broker is registered to sell insurance in the state, and inquire about whether your state has a guaranty association that provides some level of protection if an insurance company doing business in that state fails.