How An Immediate Fixed Annuity Works
There are two primary types of annuity contracts on the market today, immediate and deferred. Although this insurance product can be simplified down into these two categories, there are near countless variations of the different policies. Before your purchase an annuity, fully understand the contract you are signing and make certain the product is right for you. The different insurance companies can offer vastly different products, so it is important that you shop around and find one that fits your unique needs.
By way of clarification, the immediate fixed annuity is a contract in which the distributions from the insurance company to the beneficiary begin immediately. What this means in practice is that the distributions begin one period after the date of purchase. This can mean one month after the day of purchase if the account is designed to make monthly payments, or it can mean one year after the start date if the account is setup on an annual basis.
An immediate fixed annuity contract is almost always paid for in one lump sum payment to the insurance company. In contrast, a deferred annuity may be setup up to take installment payments over a period of time. The accumulation period of a deferred annuity can be for a couple of months to a couple of years, depending on the terms of the contract.
Distributions out of an immediate annuity can be created in a number of different ways. It is not uncommon for an annuity to make distributions for a set number of years. One of the unique options however, is the lifetime annuity option. This allows the annuity to continue to make income payments for the lifetime of the annuitant, ensuring that the account owner has residual income for the remainder of their lifetime. This option can open some interesting and beneficial retirement planning options for seniors when used properly.
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