Single Premium Immediate Annuity Benefits

2007-03-08 10:33:40

( Insurance )



A single premium immediate annuity is mainly used as a retirement planning instrument. This can be perfect for you if you have a big sum to invest from which you want to earn an income, but at the same time you don’t want to bother with financial management and prefer to sit back and wait for periodic payments.

A single premium immediate annuity is made possible by a single deposit to an insurance company or a financial institution that offers the service. With the deposit, you will be asked by your insurance company to choose among the annuity options available. For example, you will be asked to choose if you want to receive your annuity for a certain number of years or for the whole of your lifetime. You will also be asked to choose how often you want to receive your annuity, whether you prefer to receive payouts monthly, quarterly, semi-annually, or annually.

A single premium immediate annuity is quite unlike the deferred annuity plan. In this type of annuity, you have to accumulate the funds first by paying monthly or as often as it is stated in your insurance contract. It will be similar to paying a life insurance premium or an auto insurance premium. But instead of receiving money for accidents or your demise, your accumulated funds are doled out to you every month, every quarter, every six months or every year after the specified accumulation phase ends and the payout or the return of premium – return of premium because your payouts are simply your monthly premiums being returned to you– phase begins.

But regardless of how the funds were accumulated, through monthly premiums or through a single lump sum payment, both of these annuity plans give you the benefit of wealth building. Through a single premium immediate annuity plan, in particular, you immediately begin earning interest on your money because you deposited your money all at once. The rate of interest can be fixed or variable, whichever you prefer.

With annuity payments, tax deferment is another benefit. If your retirement fund matures and you withdraw it in one lump sum, you will pay a very big tax for that. But if you choose to deposit the money to a single premium annuity plan, you will only pay taxes for your scheduled or unscheduled withdrawals. This should not be too hard to bear because the interest you’re earning offsets this.

Most importantly, a single premium immediate annuity plan gives you security in your old age because you are assured that you will never go through all your money due to carelessness or irresponsibility. You are guaranteed an income for as long as you want or for as long as you live.


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