Immediate Annuity
An insurance product where you pay a lump sum to an insurance company and immediately begin receiving regular monthly payments for a specified period or for life. Payments typically start within 30 days of purchase, providing instant income stream.
Example
“At age 70, Robert converted his $300,000 401k rollover into an immediate annuity, guaranteeing him $1,800 monthly income for the rest of his life.”
Memory Tip
Immediate = 'I'm-ME-diate' - 'I want MY money immediately' turning a lump sum into instant monthly income.
Why It Matters
Immediate annuities provide guaranteed income that you cannot outlive, protecting against longevity risk in retirement. They offer predictable cash flow that can cover essential expenses regardless of market conditions or how long you live.
Common Misconception
Many people believe immediate annuities are poor investments because you lose access to your principal, but they're actually insurance against living too long rather than investments. The goal is income security, not wealth accumulation, and the payments often exceed what safe investments could provide.
In Practice
Susan, age 65, invested $200,000 in an immediate annuity that pays $1,200 monthly for life. If she lives to 95, she'll receive $432,000 total ($1,200 × 12 × 30 years), earning a 2.6% annual return while eliminating all investment risk. Even if she dies at 80 after receiving only $216,000, the insurance protected her from the risk of running out of money had she lived longer.
Etymology
From Latin 'immediatus' meaning without delay, and 'annuus' meaning yearly, referring to regular periodic payments without waiting period.
Common Misspellings
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