Immediate Annuities

By Compuquotes Team on August 2nd, 2008

Immediate annuities are an agreement between an insurance company and yourself (the insured) that basically says that you will pay the insurer a lump sum of money in which the insurer will begin making regular payments to you, and will continue to do so for the rest of your life. Immediate annuities start paying right away; at the most within the year after depositing a lump sum of money, after you've signed the insurance contract with the insurance company.

Annuities offer a great number of benefits:

  • Guaranteed income - your retirement years are guaranteed to have income. No longer do you have any fears or insecurities about financial instability or problems. These issues are now guaranteed by the insurance company to not happen to you.
  • Save time - you don't have to spend a lot of time managing your money to save for your retirement. The insurance company invests your money for you and pays you the amount you both agreed on at the same time, each and every month.
  • No administration or transaction fees - save time and money without having to pay any transaction fees or administrative fees which are associated with most other retirement savings plans.
  • High returns - the interest rates for annuities are usually quite a bit higher than Certificate of Deposit interest rates or Treasury Rates. A portion of the principal annuity amount is paid to you each month so the payments are greater than the interest you've made on your annuity.
  • Potential to save on taxes - depending on the type of immediate annuity you chose, you may be able to save on taxes too.

A straight life annuity, the most basic arrangement of immediate annuities, yields the most interest for you. However this may not be the best product for you and your insurance company has other choices that may be better for you. Typically these annuity choices include:

  • Period certain - this annuity guarantees to be paid out over a defined period of time. If you pass away before the time period ends, the funds will be paid to your beneficiaries. The downside to this is that you may outlive the annuity payments.
  • Period certain and continuous - the income from this type of annuity is greater for your lifetime but if you pass away before the end of the annuity period, your beneficiaries are paid through to the period end.
  • Joint and survivor - in this type of annuity, two people receive the full payment each month. If one of them passes away, the other receives a portion of the annuity payments, which is typically 50 to 75 per cent.
  • Variable income - in fixed income annuities (most popular), each monthly payment is the same and pre-determined. However, with a variable income annuity, the monthly payment is based on how well the investments perform. You can combine fixed and variable, with a guaranteed portion of your monthly payment (a minimum) but potentially higher in the months where the investments perform well.

There are other immediate annuity products that are available from insurance companies as well - it's best to talk to your agent or broker and decide which product is the best fit for you and your life, your goals and plans.

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