What is An Immediate Annuity, and How Does It Work?
An immediate annuity, also called a single premium immediate annuity (SPIA), is a financial product that can guarantee you income for life.
While it’s a relatively simple product, understanding the basics can help you decide whether to buy one—and which type fits you best.
We’re going to break down what immediate annuities are, who normally buys them, and how they work.
What is an Immediate Annuity?
An immediate annuity is an insurance product that guarantees you an income stream.
At its core, it’s a contract between you and an insurance company: you pay a lump sum (the premium), and the insurer promises to make regular payments to you—often for life.
You can customize your annuity to meet your needs, which impact your payout rate. You can read more about customizing your annuity in our upcoming article.
Who Normally Buys Immediate Annuities?
Immediate annuities fulfill a specific need for people who want to guarantee a retirement income stream they can rely on. As a result, the typical immediate annuity buyer is someone who is near or at retirement.
Immediate annuities are popular with retirees:
- They can effectively create a pension if someone doesn’t have one for retirement
- Immediate annuity rates are often based on the person’s life expectancy, so buying in retirement normally yields the highest payout rates
- They have some tax advantages for people who use an accumulation annuity that has grown for years as the funding source
- Various funding sources can be used to buy an immediate annuity, such as IRAs, 401ks, other annuities, pensions and personal savings
- They provide a guaranteed lifetime income stream, offering retirees peace of mind and a sense of security
For most people, the appeal of an immediate annuity is that it creates a guaranteed income stream you cannot outlive.
You cannot guarantee you won’t outlive a savings account, stocks, bonds, or CDs because all of those products have the potential to be emptied out if you live long enough. An immediate annuity is the solution to the problem of providing income you cannot outlive.
We wanted to establish a bit of extra income. There was a good recommendation about ImmediateAnnuities.com on CNN. We also liked that we could see excellent reviews about them on Google. They were very thorough from our first inquiry to when we decided to buy our annuity from Mass Mutual. They always answered our questions promptly and followed up with the insurance company, too. We have been receiving our monthly payments since last November and couldn’t be happier. What more can we say?
How Does An Immediate Annuity Work?
An immediate annuity guarantees a regular income stream, often for life—but how can an insurance company afford to do this?
The answer to this question lies in the transfer of risk. If you try to pay yourself every month, there is a risk that you outlive your money. In this instance, you may no longer be able to pay yourself your regular monthly income.
However, the insurance company assumes the risk that you live a long time. The insurer can do this because they issue many immediate annuity contracts. We won’t get into the statistics of it, but some of their policy holders will live a long time, while others will pass away earlier than their life expectancies.
Insurers can assume this risk because they specialize in managing it. Their annuity rates are based on their investments, your age, and your payout options.
From this information, they come up with a rate that is competitive for you, but also one that they are confident they will be able to pay even if you live a long time.
This arrangement is what allows insurers to offer you predictable, guaranteed payments for life.
Where Can You Find Immediate Annuity Rates?
At this point, you may be wondering how much immediate annuities pay out. Because immediate annuity rates are based on your personal information, you need to run a customized quote to see how much you can earn.
You can calculate your guaranteed lifetime income stream by using the blue calculator on this page. You’ll instantly see your immediate annuity payout rates from top-rated companies. It’s fast, free, and easy to do. There is no phone number required and no obligation.
How Do You Buy an Immediate Annuity?
If you’re ready to buy an immediate annuity, just call our annuity experts at (866) 866-1999. We’ll walk you through the process, making sure your annuity is issued promptly and correctly. We have over 30 years of experience working exclusively with annuities and consistently earn excellent customer reviews.
And if you just have questions, call us at (866) 866-1999. There’s no question too small, and we promise we’ll give you honest answers without any sales pressure. We’re here to help you on your annuity journey, even if you decide it’s not the right fit in the end.
What’s an Immediate Annuity?
An immediate annuity is a contract between you and an insurance company where in exchange for a lump sum of money called a premium, the insurer promises to pay you guaranteed, regular income, often for life.
Can an immediate annuity cover both me and my spouse?
Yes! You can buy a joint life annuity that will last as long as either you or your spouse are alive.
Can I name beneficiaries on my immediate annuity?
If you purchase an annuity with a refund certain or period certain payout option, you can have beneficiaries on your policy. The amount they receive will depend on when you pass away.
Who issues immediate annuities?
Immediate annuities are technically a form of life insurance and are issued by insurance companies. Because it is a contract between you and an insurer, it’s wise to make sure your insurance company has strong financial ratings.
When do payments start on an immediate annuity?
Payments typically begin one month after the contract is issued, though you can select a start date up to a year later.
Are immediate annuities taxable?
The taxation of immediate annuities depends on the funding source. Read our article about tax qualification to understand how your immediate annuity payments may be taxed.
References:
- “Consumer’s Guide to Understanding Annuities” Wisconsin Office of the Commissioner of Insurance, revised September 2025.
- “Annuity Products in New York” Department of Financial Services, New York State.
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Comments (17)
Kyle
2024-01-03 16:16:56
Hi Sam,
Thanks for reaching out!
Yes, what you're looking for is called a "20 Year Period Certain" immediate annuity. You can actually request these quotes via our quote calculator here:
https://www.immediateannuities.com/
After you click the "Get My Quote" button, you'll have a number of estimates on the left side of your screen. If you click the "Load More Annuity Quotes" link beneath the chart, you'll see expanded options including "20 Year Period Certain." You'll just want to add that option to your quote comparison.
Please let us know if you have any remaining questions. We'll be very happy to help!
Best regards,
Kyle
Sam
2024-01-03 07:23:38
Do you have a product that pays for 20 years ? Sort of an immediate annuity but is not dependent on the life of the annuity owner? If so can I get a price for that? Thanks
Kyle
2023-08-16 17:37:54
HI Esther,
Thank you for reaching out!
When you run a quote comparison through our website, those quotes are valid for a particular amount of time, depending on the insurance company. Most commonly, the quotes are valid for 1-2 weeks. You would only need to re-run your report if your quote were no longer valid (expired).
Please feel free to reach out with any additional questions or concerns.
Best regards,
Kyle
Esther
2023-08-16 13:39:03
In one of your comments you indicated that: "When you're ready to buy an annuity we send you a prefilled application which you mail to the Insurance Company".
At this point, do I need to receive a new quote from the Insurance Co. or does the original quote I received from I.A. still apply??
Thank you.
Hersh Stern (ImmediateAnnuities.com)
2015-10-02 16:07:52
Hi Vicki-
Yes, there is a section on the annuity application that asks information about your finances so the insurance company can determine whether or not buying their annuity is a suitable purchase in your situation. You will be asked to provide information about your income, assets, liabilities, and the like. These are the types of questions you'll find on the application. There are no questions which specifically ask about your health, if you were wondering about that.
It's important to remember that when you buy an immediate or deferred income annuity, you are surrendering your premium. As a result, you cannot access that money in case of emergencies. Generally, the companies want to be sure that that you have sufficient liquidity or emergency cash to cover unexpected expenses which may arise.
-Hersh
Vicki
2015-10-02 16:07:21
Does the annuity application assess eligibility? I was told I had to be regarded as eligible.
Hersh Stern (ImmediateAnnuities.com)
2015-08-10 15:37:07
Hi Geoff-
Immediate annuities are only sold as "single premium" products. This means the policy is "locked" so you'll need to apply again to buy a second contract. There are annuities which are called "flexible premium" policies, but immediates are not that type.
Hersh
Geoff
2015-08-10 15:36:37
How easy would it be to put more money into an existing immediate annuity policy? Or would I have to just get a new policy with the same insurance company? Just hoping to cut down a little paperwork.
Leslie
2015-06-17 16:19:47
Thanks for your reply, Hersh. I called the insurance company this morning and indeed a mistake was made and they're sending me a new settlement contract.
I really appreciate your answering my question. Thanks again!
Hersh Stern (ImmediateAnnuities.com)
2015-06-17 16:17:34
Hi Leslie-
I agree with you. Calculating 63 years for a 50 year old to recover the cost basis doesn't make sense. Best to call the company and point that out to them. BTW, ask to speak with a supervisor who understands the concept of exclusion ratios as it applies to immediate annuities. Otherwise you may not get the right response.
Hersh
Leslie
2015-06-17 16:17:12
I'm 50 years old. I inherited a non-qualified annuity and opted to take payments for the rest of my life. The original premium my dad paid 19 years ago was $18,000. The policy value increased to $48,580. The company told me the tax-free portion of my annual payments will only be $288.85. This looks wrong. If I divide that into $18,000 it will take 63 years or until I'm 113 years old to recover the premium --- is there an error in this calculation?
Hersh Stern (ImmediateAnnuities.com)
2015-06-12 14:50:47
Hi John-
The subject of taxes and trust distributions is very complex. I strongly urge you to consult with a tax attorney or CPA to get reliable answers to your question.
I can tell you this. You're right that an immediate lifetime annuity can spread the taxes on gains from, say, a previously-owned deferred annuity (if it's exchanged under Section 1035 of the IRC). But I don't know how your wife can use an annuity to avoid taxes on her share of the gains in the trust because she would have constructive receipt of her share of the trust gains before buying the annuity. So income taxes would become due before she's had a chance to move any of the money into an annuity.
If you're thinking that the trust should buy the annuity and then transfer it to her, that scenario has it's own set of complications. I think you'd be best served by discussing your question with a competent tax professional. I can certainly help you to purchase an annuity but you should first confirm that buying an annuity will minimize your taxes.
-Hersh
John
2015-06-12 14:49:23
My wife is one of several beneficiaries of her parent's trust. She is 64 years old. Can she use an immediate annuity to spread her portion of distribution over multiple years to minimize the taxes. If so, should she be the owner and annuitant with her spouse (me) as beneficiary?
Hersh Stern (ImmediateAnnuities.com)
2015-06-01 16:32:50
Hi Robert -
You asked about LTC options combined with immediate annuities. Generally, most clients that ask this question are referring to a feature where the insurance company permits you to accelerate your monthly annuity payments if you're confined to a nursing home. It's not that the company will pay your nursing home rent, as an LTC insurance policy does. It's just available for you to request one large advanced payment above what you ordinarily receive each month.
If this is what you had in mind, then, yes, a few of the companies we represent do offer accelerated payment features in their immediate annuity contracts, which frankly, you can exercise even if you're not confined to a nursing home. These options are available to any annuity owner for any purpose.
Keep in mind, too, that the amount this feature permits you to withdraw is limited to only a small portion of your premium. Also, when the company pays you the cash advance, it reduces the amount of your regular monthly payment to offset the amount paid in the lump sum.
There are other types of annuities which offer penalty-free nursing home or terminal illness withdrawals. Fixed index annuities with income riders are amongst them. You can see more information about them here:
https://www.immediateannuities.com/fixed-index-annuities/
-Hersh
Robert
2015-06-01 16:25:22
Do you have an immediate annuity that you could recommend with a LTC option?
Hersh Stern (ImmediateAnnuities.com)
2015-05-27 12:43:34
Hi Grant-
Regarding the different sources of funding - you will need to purchase two annuities. One funded with IRA (so-called pre-tax or "qualified") monies. And a second funded with your after-tax savings (or, "non-qualified") monies.
Overall, the two annuities will give you nearly the same total income you would have received if you purchased one large annuity.
The reason for allocating your premium to the purchase of two annuities instead of one is that the tax treatment of the income you receive from these two annuities is different.
The income you get from your IRA annuity is fully taxable. At the end of the year, you receive a Form-1099-R from the insurance company which will show the year's income is fully taxable.
However, the second 1099 for the "non-qualified" annuity will indicate that only a fraction of the total income received during the previous year is taxable. The taxable portion reflects the new interest you earned in your annuity. Whereas that part of each month's income which represent a return of your original (already-taxed) money is NOT subject to taxes when the company pays it back to you.
P.S. - Regarding the stocks, in order to buy an annuity you'll need to cash these out. An annuity can only be purchased with cash. If your stocks are an IRA account, then of course they're treated the same was as any other IRA. If your stocks are in a non-IRA account, then once you cash them out they have the status of "non-qualified" savings (even if you haven't yet paid capital gains tax).
Hersh
Grant
2015-05-27 12:37:09
My total premium is a mix of pretax IRA and after-tax savings and some stocks. How do we account for the difference in sources?