mobile-bannertablet-bannerdesktop-banner
TIME Magazine default image

What Is an Immediate Annuity?

May 30, 2014

Immediate annuities (sometimes called income or payout annuities), are pretty straightforward - basically a mirror image of a life insurance policy. Instead of paying regular premiums to an insurer that makes a lump-sum payment upon your death, with an annuity you give the insurer a lump sum of cash in return for regular income payments until you die. (Actually, you have several options, including payments for a specified period of time - say, 10 or 20 years - or payments that will continue for as long as you or your spouse is alive.)

As the name suggests, immediate annuities start paying out right away, so they are frequently used by people already in retirement. You may also hear about a “deferred annuity,” where your money is invested for a period of time until you are ready to begin taking withdrawals, typically in retirement. A deferred annuity can also be converted into an immediate annuity.

Within these two categories, annuities can also be either fixed or variable depending on whether the payout is a fixed sum, tied to the performance of the overall market or group of investments, or a combination of the two.

All products and services featured are based solely on editorial selection. MONEY may receive compensation for some links to products and services on this website.

Quotes delayed at least 15 minutes. Market data provided by Interactive Data. ETF and Mutual Fund data provided by Morningstar, Inc. Dow Jones Terms & Conditions: http://www.djindexes.com/mdsidx/html/tandc/indexestandcs.html. S&P Index data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Terms & Conditions. Powered and implemented by Interactive Data Managed Solutions