How to Purchase an Immediate Annuity

You can buy an annuity and start receiving payments from it immediately. Find out how immediate annuities, which are sold by insurance companies, work - and whether they will work for you.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Checkbook Wallets
• Business Magazines

1. Understand what an annuity is. Normally, an investor pays a sum of money to an insurance company for a contract saying that the investor will receive a stream of money in the future, usually at retirement.
2. Know that an immediate annuity provides the stream of money immediately or within the first year of the investment. Payments can be made at a fixed or variable interest rate.
3. Call or send e-mail to a variety of top insurance companies and ask for details about their immediate annuities.
4. Inquire about the payout options. Some insurers offer a monthly payment as long as the investor is alive. Others pay only for a set number of years. Others send payments to the investor and a beneficiary for life.
5. Learn whether the annuity pays a fixed or variable rate of interest and decide whether it suits your needs.
6. Know that in some cases, if the investor dies before the balance is exhausted, the insurer may keep the money. Know the rules before you buy.
7. Ask the insurer if you can get your money out - and under what terms - if you change your mind after making the investment.

Tips & Warnings

• Avoid annuities that charge fees exceeding 2 percent.
• Remember that if inflation rises, your investment may not keep pace.
• If the insurer becomes insolvent, the investor loses out.