Immediate Annuities
Immediate annuities are secure financial tools offering instant access to annuity payments after purchase, providing reliable income right when you need it.
What Is an Immediate Annuity?
An immediate annuity is a contract used to ensure financial stability over a period of time. Annuitants use a lump-sum payment, also known as a single premium, to purchase an immediate annuity, which immediately begins paying out.
These annuity withdrawals occur at regular intervals for a specific period of time, or until the annuitant's death. Immediate annuities may be wise choices for retirees looking to receive income from their annuity right away, in place of a paycheck.
Key Features:
- Payments begin immediately after purchase
- One-time lump sum premium payment
- Choose payment frequency (monthly, quarterly, annual)
- Can accommodate joint and survivor options
- Provides reliable income stream for life
How Do Immediate Annuities Work?
Immediate annuities are meant to provide a reliable stream of income so annuitants do not outlive their nest egg. These contracts are typically bought through an insurance company with a lump sum deposit called a single premium.
Unlike a deferred annuity when annuity payments are disbursed at a later date, immediate annuity payments are disbursed immediately upon receipt of the lump sum payment. In exchange, the insurance company agrees to provide you with regular payments for a set period of time, or life.
Annuitants can choose several variables of their annuity before they purchase it. Once the contract is signed, however, an annuity cannot be changed. While writing the contract, annuitants can choose how frequently they'd like to receive payments, and how long they'd like to receive payments for.
An annuity contract can also be written to accommodate more than one person, such as a married couple. A joint and survivor annuity pays out to both annuitants until one dies. Whichever spouse lives the longest will continue to receive their annuity payments until their death.
Immediate Fixed vs. Variable Annuities
There are two main types of immediate annuities. While both provide a financial cushion, the interest values differ and affect the amount of payment disbursed.
Immediate Fixed Annuity
Immediate fixed annuities are tax-deferred contracts that guarantee a consistent rate of return. The money invested will grow and not drop in value, no matter the financial climate.
- Guaranteed consistent payments
- Low-risk investment option
- Protected from market volatility
Immediate Variable Annuity
Immediate variable annuities are linked to the stock market or other financial tools. Annuity owners choose where to invest their money and the insurance company invests on their behalf.
- Potential for higher returns
- Carries investment risk
- Payments fluctuate with market
Who Should Consider an Immediate Annuity?
Immediate annuities can offer individuals a sense of security that life insurance policies cannot. Certain individuals can benefit more from this product.
Senior Citizens or Retirees
Immediate annuities are great for retirees seeking additional income. Combining annuity payments with Social Security can help maintain a sufficient budget in retirement.
People with Longer Life Expectancy
To realize maximum benefit from their money, it's best for those with a long life expectancy to purchase immediate annuities, as payments continue for life.
Individuals with Dependents
If you want to secure your family's financial future, an immediate annuity with a death benefit allows you to select beneficiaries for remaining disbursements.
Pros and Cons of Immediate Annuities
Immediate annuities can help secure a guaranteed revenue stream for your entire life. Consider these factors before deciding.
Pros
Immediate Income
Payments begin right away after your lump sum purchase
One-Time Purchase
Simple, single premium payment to get started
Flexible Payment Options
Choose monthly, quarterly, or annual disbursements
Tax-Deferred Growth
Your investment grows without immediate taxation
Death Benefit Option
Can include beneficiary protection for remaining funds
Cons
Inflexible Contract Terms
Once signed, the contract cannot be changed
Surrender of Principal
You give up access to your lump sum payment
Withdrawal Fees
Surrender charges apply for early withdrawals
Selling Your Immediate Annuity
The biggest drawback of an immediate annuity is the inflexible contract terms. While an annuity may have been a wise choice at the time of purchase, financial circumstances can easily change. You may need the money for a home repair, medical emergency, outstanding debt, or college education.
If this happens to you, CBC Settlement Funding can help. Our team has experience working in the secondary market and received an A+ rating from the Better Business Bureau. In exchange for selling the rights to your future annuity payments, we can give you access to cash quickly.
Learn About Selling Your AnnuityLet CBC Help
Our team of experienced, caring professionals will make the process of selling some or all of your structured settlement or annuity payments easy.