There is a variety of fixed immediate annuities and you can make your choice. However, each type of fixed immediate annuity has its own merits. Fixed immediate annuities offer a consistent income and mostly sought after by retired persons and seek to secure a long term income.
One deposits a single sum with the annuity company. In return, the annuity company makes a series of payments to you, based on how you select to get those payments. The period of annuity payments is called the annuitization phase or payout phase.
For what is known as the annuitization period, there are principally two kinds of fixed immediate annuities - life annuities and term certain annuities. The life annuities offer a predetermined amount for every period (e.g. month, calendar quarter, calendar year) till the investor or annuitant passes away. As regards term certain immediate annuities, the company pays a fixed amount each month (or any specified period) till the annuity term expires (e.g. 10 years, 15 years, 20 years).
In the case of a life immediate annuity, the size of the monthly payments is based on the annuitant's expected lifespan, the amount deposit, current annuity rates and the investor's current age. The shorter the life expectancy (i.e. the older the investor), the larger the annuity payout will be for the simple reason that bulk of the immediate annuity investment must be repaid within a short period. For instance, if two individuals 60 years and 80 years of age pay the same amount of premium towards an immediate annuity, the 80-year-old individual will receive a bigger monthly check as he will have a shorter lifespan. The 60-year-old receives a smaller check but theoretically, for more years.
Straight life annuities, as a matter of fact, are quite uncomplicated. As soon as the annuitization phase commences, this annuity pays a fixed sum per period to the annuitant until he passes away.
A substandard health-adjusted annuity may be described as a straight life annuity that may be bought by an individual with some serious health complications. Based on the health condition and the obvious shorter life expectancy which is anticipated, the annuity company will make bigger monthly payments. Paradoxically, for this type of annuity, ill-health is a financial blessing.
Life immediate annuities with an assured term or more familiarly called term certain, offer a beneficiary choice. If the annuitant passes away prior to the end of the guaranteed term, then the beneficiary will stand to get the unpaid part of the money. Of course, this benefit will entail an extra cost in terms of lower payments to the investor.
A joint life with last survivor immediate annuity continues payments to the annuitant's spouse post annuitant's death. However payouts for longer periods may mean higher costs.
Term Certain Immediate Annuities offer a fixed amount per period up to a predetermined date. Even assuming the annuitant passes away before the said date, the annuity company will continue payments to the beneficiaries for the remaining part of the specified term. Immediate annuities are a great investment for providing income.