One of the oldest forms of annuities on the market are fixed immediate annuities. This contract type dates back at least two centuries and has been offered by insurance companies as a staple of annuity sales. Although there are now a wide number of variations of annuity types, the traditional form of this product is still quite prevalent.
Although this is not always the case, most immediate annuity contracts are created as lifetime annuities. Lifetime annuity contracts are designed to function as it sounds, for the lifetime of the annuitant. This is one method to ensure that the investor is not able to outlive their income streams. As such, the lifetime option can be quite popular for seniors when they are figuring out their retirement plans.
For a lump-sum and up-front payment to the insurance company, the annuity owner contracts to received fixed monthly or annual payments for the remainder of the annuitant’s lifetime. The size of the payment is determined by the insurance company and the creation of the contract, and utilizes a number of criteria to calculate. Factors such as life expectancy of the annuitant, size of the lump-sum premium, interest rate, frequency, and other aspects can affect the dollar amount that is paid out each month.
This type of contract is considered a fixed annuity because the payments remain at a fixed level for the duration of the insurance contract, and is sometimes referred to as a fixed income annuity. The differences between these contract variations tend to come down to details and options.
Once an immediate annuity is created, the payments to the account owner’s designated beneficiary begin one period after the account is funded. This means one month after creation if the payments are to be received monthly, or one year is the payments are designed to pay out annually.