Turning a lump sum into income
A single-premium immediate annuity is designed to begin payments soon after the contract is issued. The owner selects an income option, and the insurer calculates payments using factors such as age, premium amount, interest assumptions, and the chosen payout structure.
Common payout choices
Options may include income for life, income for two lives, or income for a set period. Adding a period-certain or refund feature can provide payments to a beneficiary under stated circumstances, but it usually changes the payment amount.
Why people consider one
Immediate annuities may be evaluated by people who want to convert part of their savings into a predictable income stream and reduce the risk of outliving that portion of their assets.
Trade-offs to review
The premium may become irrevocably committed to the income option. Liquidity can be limited or unavailable. Inflation can reduce purchasing power unless the contract includes an adjustment feature, which may lower initial income.
Questions to ask
- Is the payment for one life, two lives, or a fixed period?
- What happens at death?
- Is any refund or period-certain feature included?
- Are payments level or adjusted over time?
- Can the income option be changed after issue?
Compare the contract's income, liquidity, beneficiary treatment, and insurer strength—not just the initial payment.