Annuity123 is dedicated to providing Americans with unbiased information about retirement, answering the tough questions you want to know.

With hundreds of articles on every retirement planning topic you can think of, peace of mind is just a click away.

What Is The Purpose Of An Immediate Annuity?

Stan The Annuity Man

Question: Why would anyone buy an immediate annuity?  What’s the purpose of it?  Isn’t it just getting your money back? from Taylor G. in Los Gatos, California

Answer: Interesting questions Taylor, but very good ones.  An immediate annuity is formally called a Single Premium Immediate Annuity, and also known as an income annuity.  It is the original annuity product and was first introduced in Roman times.

People buy immediate annuities because they are looking for a pension type income stream.  They want to make sure that they are not going to outlive their money (aka: longevity risk), regardless of how long they live.  That is the true purpose of an immediate annuity.

An immediate annuity is a pure transfer of risk product.  You are transferring the risk to the insurance company to guarantee paying you for as long as you live.  In essence, you are making a bet with the insurance company/annuity carrier that you are going to live longer than they think you are going to live.  And if you do live longer than your proposed life expectancy, they are on the hook to pay you.  It’s important to know that all annuity income streams are based on your life expectancy at the time you decide to take income.

You can also set up an immediate annuity to pay for a certain period of time.  For example, you can buy a 10 Year Certain Immediate Annuity.  That means there will be 10 years of payments going to you, or your listed beneficiaries if you die before the 10 year time period is up.  After the 10 years of payments, then the policy is over and done.  These “period certain” immediate annuities are not currently used that much due to the low interest rate environment.

You can combine a period certain with a life guarantee.  For example, you can buy a “Life with 10 year certain” immediate annuity.  That means the annuity will pay you for life (regardless of how long you live), or 10 years….whichever is longer.  For instance, if you live till you are 125, it will pay you.  But if you die 2 years after the annuity has been issued, then your listed beneficiaries will receive 8 more years of payments (8 + 2 = 10).

An immediate annuity payment is a combination of return of principal and interest.  So part of your question is correct, you are getting some of your money back.  Outside of an IRA (or in a non-qualified account), your income stream will have tax benefits because you will not pay taxes on the principal, but only the interest.

One of the fallacies about an immediate annuity is that if you die, the insurance company keeps the money that has not been used.  That’s called a “Life Only” annuity, and if you structure it like that, then that example could happen.  However, you can structure the policy so that the insurance company will never get a penny, and if you die early in the contract, 100% of the unused money will go to your listed beneficiaries.

And finally, an immediate annuity is a true commodity product.  It pays the lowest commission to the agent.  Simple.  Efficient.  No Fees.  Pure transfer of risk.  There are about 50 to 60 companies that are truly competitive in the immediate annuity world, so my advice is to shop them all for the best and highest contractual guarantee.

The “Ask Stan The Annuity Man” educational series is provided by a nationally recognized annuity critic and annuity consumer advocate.  Stan The Annuity Man has over 25 years of experience in the financial services industry, and is the author of the highly acclaimed book, The Annuity Stanifesto.

*If you have a question for Stan The Annuity Man, please send your question to  He will answer all questions directly, and might include yours in his next Annuity123 “Ask Stan The Annuity Man” blog.

Click here to see more of Stan’s educational articles.

About the Author:

Stan The Annuity Man is a nationally recognized annuity expert and annuity critic, and has been called the national consumer advocate for annuities… and a walking middle finger of annuity truth.  He is a weekly RetireMentor columnist for The Wall Street Journal’s, and is the exclusive annuity contributor for  His highly acclaimed book, The Annuity Stanifesto, is a top seller in its category, and is known as the go to resource for all things annuity.

Stan The Annuity Man has clients nationwide, and is considered one of the top independent annuity agents in the country.  You can learn more at


Annuity123 does not offer insurance, investment, or tax advice.  You should always seek the guidance of qualified and licensed professionals concerning your personal insurance, investment, or tax matters.  Annuity123 is simply a platform allowing retirement planning professionals to help educate the community on various retirement planning topics.  Annuity123 does not directly support or take responsibility for ensuring the accuracy of the content displayed in the articles themselves or any feedback that may get added in the Comments section from the community.


  • Kylie Dotts says:

    It’s interesting that an annuity service can provide you with a set payment for up to years after you have passed away. This would be a smart thing to do if you have debts that still need to be paid off or if you want to give something back to your kids or other friends or family members. You could also use this to give a little bit to all of your family to avoid infighting among them.

  • Marcus says:

    It really helped when you mentioned how getting annuity can help you make sure you enjoy your life insurance money. I can understand that doing this can help you find the best policy to help you with your money. A friend of mine was talking about how she needed to look into an annuity, so I wanted to learn more about it too.

Leave a Reply

Your email address will not be published. Required fields are marked *