The immediate annuity is basically the exact opposite of life insurance. While proceeds of life insurance are paid at the time of death of the insured, the proceeds of an annuity are paid while the annuitant is alive. Generally, the annuitant can never outlive the income from the annuity. However, you can also purchase an annuity called a period certain which will provide income only for a specified period of time. Annuities are primarily intended to provide a source of retirement income. Payments can made to the annuitant monthly, quarterly, semiannually or annually. While there are many types of annuity products available, they can be classified into three general categories: single premium immediate payment annuities, deferred annuities and variable annuities. Both the deferred and variable types are available on a single premium or flexible premium basis.

Single Premium Immediate Annuities (SPIA) With this type of annuity, you pay a single premium, and immediately receive payments, usually in monthly installments, as long as you live. Since payments cease upon your death you might consider the purchase of a life annuity with a guaranteed payment period, known as a life annuity with period certain. If your guaranteed payment period is ten years, and you die before collecting for ten years, your beneficiary would continue to receive the annuity payments until the end of the period.

Another variation is the cash refund life annuity which provides that if you have not received installment benefits equal to the original premium payment before your death, the balance would be payable to your beneficiary in a lump sum payment. The installment life refund option would continue until the total to both you and the beneficiary equals the original premium payment.

Another common version is the joint and survivor life annuity, which provides for installment payments as long as one of the joint annuitants remains alive. For example, a married couple would receive an income as long as both spouses are alive. Thereafter, payments would continue as long as the surviving spouse is alive, usually for a smaller amount. This type of policy is well suited for a husband and wife in that it guarantees the surviving spouse an income for life.

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Deferred Annuities Single Premium (SPDA) and Flexible Premium (FPDA). Under a deferred annuity, premiums paid accumulate, earning interest, and installment payments or withdrawals are deferred until some future date. When annuity benefits commence, the accumulated value is used to purchase the annuity benefits you selected. Most deferred annuities provide the same annuity payment options as are available with single premium immediate annuities. Deferred annuities are available on a single premium or flexible premium basis. Interest is credited to the accumulation value from the date that the premium payment is received until the earliest of the retirement date, the annuitant’s death or the date that funds are withdrawn.