Immediate Annuities
An immediate annuity is one in which income payments to the annuitant typically begin within one year of the annuity purchase. Immediate annuities are always purchased with a single premium. If the income payments are to be made monthly, the first payment is generally made one month after the annuity is purchased. The amount of income received for the single premium depends on the annuitant's age and sex, as well as the payment mode and annuity distribution option selected. Once purchased, an immediate annuity offers no full or partial withdrawal privileges.
Deferred Annuities
A deferred annuity is one in which income payments to the annuitant begin more than one year after the single premium or first periodic premium is paid. The premium(s) grow on a tax-deferred basis during the accumulation phase. Subject to the terms of the contract, partial and full withdrawals are available. At the end of the accumulation phase, the value of the deferred annuity is annuitized, meaning that payments to the annuitant begin. The amount received by the annuitant will depend not only on the value of the annuity at annuitization, but also on the annuitant's age and sex, and the payment mode and distribution option selected. Once the distribution phase begins, full or partial withdrawals are no longer permitted.
As noted, deferred annuities are designed to meet longer-term needs. The definition of "longer-term," however, is relative to the prospect's age. For a buyer age 55, for example, longer-term may mean 5 to 10 years. For a prospect age 40, longer-term may refer to needs that will not arise for 20 or 25 years. In either event, a prospect with $5,000 in a CD earmarked for next year's vacation is not an annuity prospect, unless other sources of funds are available. Keep this distinction in mind as you enter the non-qualified annuity market.
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