5 Advantages of an Immediate Annuity


An annuity is an insurance product that pays investors a fixed payment for a set period of time or for the rest of their lives. Many people are familiar with the idea that lottery winners can choose to have their money paid in a lump sum or in a monthly payment. That monthly payment is called an annuity.

One of the most popular forms insurance plans is an immediate annuity where an investor deposits a lump sum with an insurance company and immediately begins drawing monthly payments. Here we look at the advantages of investing in an immediate annuity.

Safety of your Principle

Money that is deposited with an insurance company is guaranteed by the insurer, and the subsequent monthly payments are guaranteed as well. The only danger is in choosing a poor insurance company. Investors want to ensure that they invest their immediate fixed annuity with an insurance company that has strong financials and high ratings by companies such as Moody’s or A.M. Best. This will ensure that your single-premium immediate annuity payments are as safe as possible.

Security Of Lifetime Income 

An immediate fixed annuity can provide a lifetime of income for some investors. The lifetime option is one of the most popular for immediate fixed annuities. You can find out immediate annuity rates and what the monthly payment would be for your lifetime through an immediate annuity calculator.

Simplicity of No Investments

One of the best features about an immediate fixed annuity is that once you invest your money with an insurance company, you are no longer concerned with the everyday investing of that principle. The insurance company, like a mutual fund, will pick the investments for you because the immediate fixed annuity principle is technically their money and the interest, dividends, and capital gains from those investments comprise of your monthly payments.

Higher Rates Of Returns

An immediate fixed annuity often provides a higher immediate annuity rate of return than a certificate of deposit or U.S. Treasuries, and the investment principle is very safe. The risk of a loss of principle is extremely low because your monthly payments are backed by the strength of the insurance company that you invest through. That is why picking the best insurance company with the best immediate annuity rates is one of your most important decisions that you can make.

Preferred Tax Treatment

The tax treatment of a single premium immediate annuity is often very favorable to the investor. This is especially true when a tax deferred annuity is rolled over to an immediate fixed annuity. In this case only the interest portion is considered taxable income.

A single premium immediate annuity is a great investment for a person’s piece of mind when they have a lump sum that can be transferred to an insurance company in exchange for fixed monthly payments.

Investors should compare the immediate annuity rates of return by using an online immediate annuity calculator to determine how much of their nest egg they need to provide to an insurance company to generate the amount of income needed in retirement. Many only websites will provide investors with immediate annuity quotes on their options for an immediate fixed annuity.
Hank Coleman is the founder of the personal finance blog Money Q & A and several other financial websites. He is a freelance writer, entrepreneur, and professional in the government sector. Hank holds a Bachelor’s Degree in Business Administration, a Master’s Degree in Finance and is currently studying for his Certified Financial Planner (CFP) credentials. Be sure to follow him on Twitter.