Immediate Payment Annuity

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Definition of 'Immediate Payment Annuity'

An immediate payment annuity is a contract between an insurance company and an individual in which the insurance company agrees to make regular payments to the individual for a specified period of time. The individual pays a lump sum of money to the insurance company in exchange for these payments.

There are two main types of immediate payment annuities: fixed and variable. With a fixed annuity, the payments are guaranteed to be a certain amount for the entire term of the contract. With a variable annuity, the payments are based on the performance of a underlying investment portfolio.

Immediate payment annuities can be a good option for retirees who want to generate a steady stream of income. They can also be used as a way to supplement Social Security or other retirement income. However, it is important to understand the terms of the contract before you purchase an immediate payment annuity.

Here are some of the things to consider when purchasing an immediate payment annuity:

* The length of the contract. The longer the contract, the higher the monthly payments will be. However, you will also have to pay more in premiums.
* The interest rate. The interest rate on an annuity is fixed or variable. A fixed rate will guarantee you a certain return on your investment, while a variable rate will fluctuate with the market.
* The surrender charges. Surrender charges are fees that you may have to pay if you withdraw money from your annuity early. These charges can be significant, so it is important to read the fine print before you sign the contract.

If you are considering purchasing an immediate payment annuity, it is important to speak with a financial advisor to make sure that it is the right investment for you.

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