Immediate Annuity

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Definition:

Immediate Annuity is an insurance policy that pays guaranteed3 income immediately in exchange for a lump sum premium. The policyholder begins to receive the annuity payout immediately after the deposit. 

Description:

When any individual invests in an annuity plan, they generally pay the premiums over the accumulation period of a few years. After the accumulation period is over, the payout begins. But in the case of an immediate annuity, the accumulation period is one-twelve months because, generally, these plans seek a one-time lump sum premium payment. The policyholder can get the regular annuity payouts after the policy goes live. 

An immediate annuity is purchased with a single premium, and the payments to the annuitants begin when one payment period, month, or year ends. The annuity type is designed to provide income payments for a specified period in exchange for lump sum payments. An immediate annuity provides an immediate income, so people entering retirement should invest in an immediate annuity.  

Example:

Ritesh, aged 45 years, worked with a private bank. His retirement was due in a few years. Thinking of his future financial security, Ritesh purchased an immediate annuity plan. 

As per the plan, he will start to receive the annuity as a regular income. Ritesh purchased a single premium immediate annuity for Rs.10 lakhs. Under this type of annuity, he had to pay one single lump sum premium, and he will receive the payout annually. The policy term offered under the immediate annuity plan was for whole life. As per the plan, Ritesh will receive an annuity of Rs.80,000/- for his whole life. 

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