What Is a Single Premium Immediate Annuity?
Individuals who receive a large lump sum of money need to decide on how they actually wish to receive the funds. One option is to purchase a single premium immediate annuity.
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Definition
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An annuity is an investment vehicle where an individual (annuitant) receives periodic payments in exchange for providing an investment company with a lump sum of money. With a single premium immediate annuity, the investor typically begins receiving payments within 30 days of the initial deposit.
Benefits
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A single premium immediate annuity allows the annuitant to receive a guaranteed income for the rest of her life. The money typically earns interest at a relatively high rate, and only the interest earned is taxable to the annuitant, not the principle amount.
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Uses
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A single premium immediate annuity is often used when an individual receives a large sum of money but wants to spread out payments instead of receiving a lump sum. Common situations include retirement benefits, structured settlements for personal injury awards and pension terminations.
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References
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