Single Premium Immediate Annuity

If you haven't given retirement planning a thought yet, the time to start doing it is now! The fact that you are looking for information about single premium immediate annuity means that you have already started thinking about it. Annuities are some of the best insurance options for your retired future.

An annuity is an insurance product which will pay the annuitant fixed or variable payouts for his entire lifetime, after he has bought it with a lump sum payment or through periodic installments. The important part to be noted here is that you are paid throughout your entire lifetime! This is what makes annuities to be popular investment options.

About Single Premium Immediate Annuity

There are several adjectives attached to the term - 'annuity'. Let me explain each one of them and provide a definition in the process.

Firstly, it is an 'immediate' annuity as your payments start immediately (in a month) after you have paid for the annuity in full, and then they continue for your entire life or a fixed period of time, depending on the terms of the agreement with insurance company. There are single premium deferred annuities which start paying after a fixed period of time.

The term 'single premium' means that you will pay for the annuity in a single installment or through a lump sum payment. The size of lump sum payment and an evaluation of your life expectancy by the actuaries of the insurance company will decide the size of your monthly payouts.

Such an insurance product could be a fixed annuity or a variable annuity. In the former case, the size of your payments will be limited by a fixed interest rate, while in the latter case, it may be related to the performance of an equity index. Rates are decided by actuaries from insurance companies, considering the financial risk involved in selling you the annuity.

So a single premium immediate annuities are ideal for anyone who has the ability to make a lump sum payment and wants the payouts to start immediately. In the event of the death of annuitant, the payout may or may not continue to a beneficiary. If they do continue, the scale of payments promised is reduced accordingly. These kinds are known as joint-and-survivors annuities. Some people opt for a single life annuity, in case there are no dependents for the annuitant to think about.

Pros and Cons of Buying One

One of the obvious pros of a single life premium immediate annuity is that payments start immediately and they continue for a lifetime, in the span of which, the annuitant can accumulate a substantial sum of money. The payments often come adjusted for inflation which ensures that the size of payouts continues to be sizable.

One of the few cons of single premium immediate annuities lies in the fact that you can never touch the principal sum invested ever in your lifetime. That is because, you have relinquished control of it, for your entire life. You need a good health care plan, that can take care of any large emergency hospitalization expenses and have sizable savings tucked away. You cannot entirely rely on an annuity for survival. The last point is taxation. Your payouts will be taxed and hence you need to account for taxes, when evaluating the size of future payouts.

Weigh all your other options before opting for a single life annuity. It is certainly a sound investment, which will secure your retired future. Project the scale of payouts that you will receive in the future and read the terms and conditions carefully, before you sign the dotted line.