Annuity for retirement had several forms. One popular form is immediate annuity. It is like any other annuity offered by financial institutions but as the name suggests, it can begin right after you signed the annuity contract. Eventually, this financial contract became synonymous with its plan of payment, which was known as an annuity. During the 20th century, majority of annuity contracts were the model of annuities today. The annuity holder will enter the first part of the contract called accumulation phase. It is where he or she is obliged to pay where company is expected to invests contribution made. After the accumulation phase, it is expected to enter the distribution phase, where the company will then make a payout to the holder for the rest of the holder’s life.
The difference between immediate annuity and deferred annuity is the process of when the payment is given. The deferred annuity may need at least one year before the payment is given. The one-year delay is needed to give insurance company ample time to invest your money. However, with immediate annuity, you may get the payment right after signing a contract. You are then expected to receive payments in monthly, quarterly, or yearly basis.
Distribution Process of Immediate Annuity
The distribution process for this type of immediate annuity is known as lifetime distribution. The annuity holder will continuously receive payments as long as he or she is alive. However, when the holder dies, all of the undistributed funds are forfeited in the favor of the company.
The forfeiture in immediate annuity is the process of counterbalance in a situation where in the holder outlives all the funds that are paid. However, to counteract the distribution process, other features are added in the plan. Now, an immediate annuity holder can name one or two beneficiaries, which may get the money if the original claimant had died expectantly. In some occasion, the company will select beneficiary but all the pay benefits will end after the second beneficiary dies. Some arbitrary issues may result in immediate annuity when the first claimant unexpectedly dies. To solve this issue, annuitant is given the option to avail a higher immediate payment than a lower but lifetime payment. However, those who choose low lifetime payment may also choose other funds.
Using Immediate Annuity Calculator
Immediate annuity calculator is available to help you have a free quote of the first lump sum premium, rates and your possible life expectancy. The life expectancy of the person may be hypothetical but it will give you the bird’s eye view of what you should expect in contrast with your lump sum.
The immediate annuity is also affected by some external factors like taxes and inflation. Your money may have higher or lower value depending on these external factors.
Who Should Buy Immediate Annuity?
For one they have the urgency to receive payments right after their first payment. They see these as investment instruments that will benefit them. Second, retirees who want to convert their retirement money to a regular stream of income, which will be able to give them comfortable life right after their retirement.
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