Definition
An immediate annuity is any annuity contract in which income payments commence within one year of issue, with the single premium immediate annuity (SPIA) as the dominant variant in current US markets.
Why it matters
The immediate annuity is a temporal classification — income begins now rather than later — and in current US markets the category is dominated by the single premium immediate annuity (SPIA). Naming the category clarifies that "immediate annuity" and "SPIA" are not entirely synonymous but are operationally close, and that the structural evaluation of an immediate annuity is the structural evaluation of the SPIA in nearly all cases.
How it works
An immediate annuity is any annuity contract in which the income phase begins at or shortly after issue. The contract has no deferral period and no accumulation phase; the premium becomes the carrier's general account asset at issue, and contractually scheduled income payments begin within one year. The standard immediate annuity is the single premium immediate annuity (SPIA), in which the entire premium is paid at issue. Less common variants include flexible-premium immediate annuities (rare in current markets), where additional premiums could be added in early years, and immediate annuities funded through the conversion of an existing deferred annuity (annuitization), in which case the accumulated value of the deferred contract becomes the premium for the immediate phase. Payout structures available for immediate annuities are the same as for any lifetime income arrangement: life-only, joint and survivor, period certain, cash refund, and installment refund.
In practice
For an individual considering an immediate annuity, the practical product under consideration is almost always a SPIA, and the evaluation framework is the cost-of-income comparison against the frictionless pool benchmark. The operative questions are the premium amount, the payout structure, the carrier selection, and the timing of purchase relative to the rate environment. A professional working in the cost-of-income framework can compute realized value at the carrier's actual quote against the benchmark; this is the analytical content of the immediate annuity decision. The category-level designation "immediate annuity" is useful primarily for distinguishing the timing structure from deferred annuities; the structural evaluation defaults to the SPIA framework.
In the Longevity Standard Framework
The immediate annuity category in current US markets is operationally the SPIA — the structural claim profile is the same, and the cost-of-income framework applies identically. The Longevity Standard framework treats immediate annuity and SPIA as effectively interchangeable for analytical purposes while preserving the categorical distinction in the vocabulary because not all immediate-payment arrangements are single-premium structures (annuitized deferred contracts produce immediate income from a different premium origin) and the analytical clarity of separating the categorical term from the dominant variant is worth maintaining. The cost-of-income comparison and realized value calculation are identical to the SPIA evaluation.
Related terms
- Single premium immediate annuity (SPIA)
- Deferred annuity
- Annuitization
- Life-only annuity
- Joint and survivor annuity
- Period certain annuity
- Cash refund annuity
- Realized value