Annuity, Immediate

What it protects against
Outliving one's money.

How it works
The policyholder pays a lump sum to an insurer, and the insurer guarantees to make periodic payments to the annuitant for life or some other period. These payments remain the same or grow in a fixed contract, may fluctuate with greater growth potential in a variable contract, or may increase but not decrease in an equity-indexed product. The periodic payments are likely to be higher than for other fixed-income investments, because they include a return of principal in each payment. That is particularly true when bought by the elderly since the payments come from a pool of money that is divided among survivors when other annuitants in the pool die.

Who needs it
People in need of reliable income that lasts for life. An immediate annuity is a kind of personal pension plan.

Who may not need it
People who have reliable pension income or are affluent enough to live off their assets without fear of depleting them.

When to buy it
Returns are greater after 65.

How you pay for it
A single premium.

Terms to Know
  • General Account  (View Definition )
  • Period Certain  (View Definition )