Immediate Annuities

Immediate Annuities are the oldest form of annuity and are characterized by their ability to generate the maximum guaranteed income stream possible from a lump-sum investment amount.  Often, the majority of their income will be non-taxable to the recipient.

With most immediate annuities the amount of the income payment is determined by a combination of two factors: the age of the annuitant and the gender of the annuitant.  In addition, there are “medically underwritten” immediate annuities that add a third factor, the state of health of the annuitant.

Immediate annuities are often used to establish “private pension plans” for individuals.  In many ways they can be set up to function much like a defined-benefit pension plan that one might receive from an employer.

The income stream can be paid over a variety of time frames, at the option of the policy owner.  The most common income payout options are:

• Guaranteed income over a single lifetime – guaranteed payments will be made to the beneficiary for as long as the annuitant is alive.
• Guaranteed income over joint lifetimes – guaranteed payments will be made to the beneficiary for as long as either joint annuitant is alive.
• Life with a period certain – guaranteed payments will be made to the beneficiary for as long as the annuitant (or joint annuitant) is alive, but in any case is guaranteed to last for at least a “certain number of years” (typically 5,10, 15, or 20 years).
• Remainder guarantee – guarantees that income payments will at least equal the invested amount regardless of how long the contract owner lives. Similar to period certain contracts, this is done to ensure a certain level of asset recovery.
• Fixed period – payments will be received by the beneficiary for a specified length of time (e.g. 5 years, 10 years, 15 years, etc.)

Immediate annuities are most often set up to provide a level income amount over the payout period selected.  However, you can also elect to have the income amount increase over time, typically increased by the amount of the CPI (Consumer Price Index).  However, when immediate annuities are set up with an increasing income amount the initial amount will often be significantly lower that it would have been with a level payment amount.

Immediate annuities will expire when the payout period is completed.  THERE IS NO RESIDUAL VALUE WITH IMMEDIATE ANNUITIES.  This is why they will almost always pay out the greatest income amount from a specified amount of investment.

With few exceptions, once immediate annuities are established the policy owner agrees to give up total control of the principal amount and the only benefits from that point forward are the income payments.