Immediate vs Deferred Annuity
An immediate annuity converts a single premium into income within 12 months, for retirees needing income now. A deferred annuity accumulates tax-deferred for years before annuitization, for savers ahead of need.
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Practice This Concept
A single premium deferred annuity (SPDA) is characterized by:
A single lump-sum premium paid at purchase, with income payments beginning at a later date — A single premium deferred annuity is purchased with one lump-sum premium, and the accumulation phase runs for a period before annuitization begins, which is why it is called deferred. During that period the cash value grows on a tax-deferred basis. This contrasts with an immediate annuity, which begins payments within a short time, and with a flexible premium annuity, which accepts multiple payments over time.
National insurance concept
Under the California licensing examination objectives, for a contract to qualify as an immediate annuity, the first income payment must begin within:
12 months of the contract date — An immediate annuity is one whose first income payment begins within one payment interval, which the official examination objectives state is within 12 months of the contract date. It is typically purchased with a single premium. Any annuity whose payments begin later than that is classified as a deferred annuity, because funds accumulate for a period before the income stream starts.
CA-specific example
- AnnuitiesA single premium deferred annuity (SPDA) is characterized by:
- State RegulationsUnder the California licensing examination objectives, for a contract to qualify as an …
- AnnuitiesA deferred annuity differs from an immediate annuity in that a deferred annuity:
- AnnuitiesAn immediate annuity is purchased with a single premium, and its income payments must b…