An immediate annuity is an important term to understand before you set up an insurance contract. The term means that you will start receiving income payment from the time of setting up an insurance contract. It is basically a contract that allows you to save money and then generate income out of the amount accumulated. It is like a savings account where you put your money and earn interest on the same. In case of an immediate annuity, you make income immediately after setting it up.
How does it work?
There are two types of annuities you may choose from. One is a single-premium immediate annuity and the other one is a deferred annuity. In the case of a single-premium annuity, you are expected to deposit a certain sum of cash with the insurance company and the company will make timely and consistent payments to you. You may opt for monthly or annual payments. It is important to keep in mind that once you sign this contract and take income, you cannot go back. It is expensive to get out of this contract. As per the contract, the insurance company will continue to make payments to you. As against this, deferred annuity only holds your money and does not pay you any income immediately. The funds get accumulated over a period of time, which you may withdraw in lump sums later.
What will you receive?
The amount of income you receive depends on the amount of money you contribute. If you contribute more, you get more. There are different payment options you need to choose from. You may ask for guaranteed payments for the rest of your life, or you may choose to receive income for the next 10 or 20 years. Your beneficiaries receive the money if you do not survive. You may also select an option where the payments are made for as long as your spouse survives. In short, every insurance company will have a different payment option for you to choose from.
If you want consistent payments for the rest of your life, it is best to choose the first option. Once you make an investment, you have nothing to worry about. You will immediately start receiving income on the amount invested. A lot of people opt for a monthly payment after their retirement. This allows them to enjoy the retirement without any financial stress. Through immediate annuity, you may also ensure the financial security of your spouse and children in your absence.