With an immediate annuity, the annuitant pays an insurance company a certain amount of money as a premium. In return for this premium, the insurance company promises to pay a specified amount to the annuitant (or his or her beneficiary) for a specified period. With an immediate annuity, a 60 year old annuitant may pay a $100,000 premium to an insurance company. After considering the annuitant's age and gender the company will then guarantee to pay the purchaser some fixed fee per year for as long as he or she lives (or a certain period of time). A portion of this payment is considered a return of premium and therefore not taxable to the annuitant. The remainder is considered interest and will be taxable as such. One of the advantages of an immediate annuity is that an annuitant cannot outlive his or her guaranteed payments.

This document was last modified on July 15, 1999

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