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Immediate Annuities Explained

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Delaware Life
Pinnacle MYGA 10

Ten Year Guaranteed
Interest Rate

3.65%
10 Year Surrender Term

A- (Excellent) Rating
from A.M. Best

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Palladium Century 7

First Year Interest Rate
8.50%
10 Year Surrender Term

A (Excellent) Rating
from A.M. Best

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Guggenheim Life
Preserve MYG 6 (250k)

Six Year Guaranteed
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3.00%
6 Year Surrender Term

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Single Premium Immediate Annuities (SPIAs) are purchased by a single deposit. They usually start making regular monthly payments to you immediately after the date you make that deposit. The key ingredient for an immediate annuity is the exchange which takes place between the insurance company and the buyer. The company promises to pay a monthly income for the life of the annuitant and the buyer gives up his rights to ever receiving his deposit back in a lump sum. Once an immediate annuity makes its first payment, it generally cannot be cashed in.

An immediate annuity can be purchased with funds from a variety of possible sources, such as: a maturing Certificate of Deposit (CD); monies which have accumulated in a Deferred Annuity account (see below); or funds from a tax-qualified defined benefit or profit-sharing plan, or from an IRA account.

Why should I consider buying an Immediate Annuity? What are its advantages to me?

Immediate annuities provide many advantages to the buyer, such as: (1) Security - the annuity provides stable lifetime income which can never be outlived or which may be guaranteed for a specified period; (2) Simplicity - the annuitant does not have to manage his investments, watch markets, report interest or dividends; (3) High Returns - the interest rates used by insurance companies to calculate immediate annuity income are generally higher than CD or Treasury rates, and since part of the principal is returned with each payment, greater amounts are received than would be provided by interest alone; (4) Preferred Tax Treatment - it lets you postpone paying taxes on some of the earnings you’ve accrued in a "tax-deferred" annuity when rolled into an immediate annuity (only the portion attributable to interest is taxable income, the bulk of the payments are nontaxable return of principal); (5) Safety of Principal - funds are guaranteed by assets of insurer and not subject to the fluctuations of financial markets; and (6) No sales or administrative charges.

SPIAs are particularly suitable for providing income in the following situations: (1) Retirement from Employment; (2) Terminal Funding or Pension Terminations (including deferred commencements); (3) Retired Life Buyouts; (4) Professional Sports Contracts; and (5) Credit Enhancement and Loan Guarantee Transactions.

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Forms of an Annuity

In its simplest form - the Straight Life or Non-refund immediate annuity - payments are guaranteed over the lifetime of one person. This form of annuity insures the recipient against outliving his financial resources and is an important instrument in planning for retirement. Given a fixed deposit amount, the monthly payments which derive from a "Life" annuity are always greater than those derived from other forms of immediate annuity, such as the "Life with Period Certain" annuity, or the "Joint and Survivor" annuity. The insurer of a single life annuity calculates its obligation only until the last regular payment preceding the annuitant’s death. With other more extended forms of annuity, the insurer calculates its risk over a longer period than the one life expectancy, and reduces accordingly the monthly payment amount. However, because the payments on a single life annuity expire when you do, selecting this form of annuity is, in a sense, a bet that you expect to live longer than the average person.

immediate annuity, immediate annuities Looking to buy an immediate annuity?  You'll need the services of a licensed insurance agent. To speak with the best annuity agents in the country, call Annuity Advantage at 1-800-239-0356.
Or, simply complete our online Immediate Annuity Quote Request Form.
View Our Online
Immediate Annuity
Private Pension
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When you extend the range of a life annuity by continuing payments to a second person ("Joint and Survivor" annuity) or for a guaranteed minimum period of time ("Period Certain" annuity), the extra coverage may reduce the monthly payment by about 5% to 15%. Several situations where these "extended" forms of immediate annuity would be most suitable are: (1) when the income needs to be guaranteed over the lifetimes of a husband and wife ("Joint and Survivor" annuity); (2) when payments must continue for a specified period (e.g. 5 or 10 years or more) to a designated beneficiary ("Certain and Continuous" annuity); or (3) when the annuitant wants to make sure that, if he should die before his full investment has been distributed in monthly payments, an amount equal to the balance of the deposit continues to a named beneficiary ("Installment Refund" annuity).

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Immediate Annuity Definitions

Period Certain Only Annuities

5-Years Period Certain (Without Life Contingency): Level payments are received for 5 years. If the annuitant should die before the end of the certain period, payments will be paid to the designated beneficiary. No payments are made to the annuitant after the end of the specified period. (You may outlive this type of annuity.)

10-Years Period Certain (Without Life Contingency): Level payments are received for 10 years. If the annuitant should die before the end of the certain period, payments will be paid to the designated beneficiary. No payments are made to the annuitant after the end of the specified period. (You may outlive this type of annuity.)

15-Years Period Certain (Without Life Contingency): Level payments are received for 15 years. If the annuitant should die before the end of the certain period, payments will be paid to the designated beneficiary. No payments are made to the annuitant after the end of the specified period. (You may outlive this type of annuity.)

20-Years Period Certain (Without Life Contingency): Level payments are received for 20 years. If the annuitant should die before the end of the certain period, payments will be paid to the designated beneficiary. No payments are made to the annuitant after the end of the specified period. (You may outlive this type of annuity.)

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Single Life Annuities

Single Life Only, Without Refund: Level payments are received for the annuitant’s lifetime and cease upon the annuitant’s death.

Single Life with 5-Years Certain (aka 5-Years Certain & Continuous): Level payments are received for the annuitant’s lifetime. However, if the annuitant should die before the end of 5 years, payments will be paid to the designated beneficiary until the end of the 5 year period.

Single Life with 10-Years Certain (aka 10-Years Certain & Continuous): Level payments are received for the annuitant’s lifetime. However, if the annuitant should die before the end of 10 years, payments will be paid to the designated beneficiary until the end of the 10 year period.

Single Life with 15-Years Certain (aka 15-Years Certain & Continuous): Level payments are received for the annuitant’s lifetime. However, if the annuitant should die before the end of 15 years, payments will be paid to the designated beneficiary until the end of the 15 year period.

Single Life with 20-Years Certain (aka 20-Years Certain & Continuous): Level payments are received for the annuitant’s lifetime. However, if the annuitant should die before the end of 20 years, payments will be paid to the designated beneficiary until the end of the 20 year period.

Single Life with 25-Years Certain (aka 25-Years Certain & Continuous): Level payments are received for the annuitant’s lifetime. However, if the annuitant should die before the end of 25 years, payments will be paid to the designated beneficiary until the end of the 25 year period.

Single Life with Installment Refund: Level payments are received for the annuitant’s lifetime. However, if the annuitant should die before receiving an amount equal to the original premium, the periodic payments will continue to be paid to the designated beneficiary until the total payments made (annuitant and beneficiary) equal the original premium (without interest).

Single Life with Cash Refund: Level payments are received for the annuitant’s lifetime. However, if the annuitant should die before receiving an amount equal to the original premium, the difference between the premium and the total payments received will be paid in one lump sum to the designated beneficiary.

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Joint & Survivor Annuities

Joint & Survivor (50%..75%) reducing on FIRST or EITHER death: Full level payments are made as long as both the annuitant and joint annuitant are alive. Upon the death of either the annuitant or joint annuitant, reduced (50%...75%) level payments will continue to the survivor for as long he/she is alive.

Adding a Period Certain provision to a Joint & Survivor (50%...75%) annuity accomplishes the following: Even if the annuitant or joint annuitant dies before the end of the certain period, payments to the survivor will not reduce until after the end of the certain period (5-25 years). If both the annuitant and joint annuitant die before the end of the certain period, full level payments will be paid to the designated beneficiary until the end of the certain period.

Joint & Survivor (50%..75%) reducing ONLY ON DEATH OF PRIMARY ANNUITANT: Full level payments will be made for as long as both the annuitant and contingent annuitant lives. Payments are never reduced to the Primary Annuitant. Payments are reduced to the Contingent annuitant should the Primary Annuitant predecease the Contingent Annuitant. (Note: This form is sometimes called Joint and Contingent annuity. However, be careful, many companies interchange their definitions for Joint and Survivor and Joint and Contingent forms. Verify that your company’s interpretation of a survivor annuity is what you have in mind to purchase.)

Adding an Installment Refund provision to a Joint & Survivor (50%...75%)  annuity does the following: Full level payments will be made for as long as both the annuitant and contingent annuitant lives.  Depending on whether the annuity is of the Joint & Survivor or Joint and Contingent type (see above), payments may reduce upon the death of either annuitant or only if the primary annuitant predecease the contingent Annuitant. However, if both the primary annuitant and joint annuitant should die before receiving in periodic payments an amount equal to the original premium, then the periodic payments continue to be paid to the estate or designated beneficiary until the total payments made (to both annuitants while living and to the beneficiary after the annuitants' deaths) equals the original premium (usually, without interest).

immediate annuities, immediate annuity Looking to buy an immediate annuity?  You'll need the services of a licensed insurance agent. To speak with the best annuity agents in the country, call Annuity Advantage at 1-800-239-0356.
Or, simply complete our online Immediate Annuity Quote Request Form.
View Our Online
Immediate Annuity
Private Pension
Video Presentation

Click Here

Adding a Cash Refund provision to a Joint & Survivor (50%...75%) annuity does the following: The only difference between this option and the Installment Refund provision is that if both the primary annuitant and joint annuitant should die before receiving in periodic payments an amount equal to the original premium, then the difference between the original premium (usually, without interest) and the periodic payments received during the annuitants' lifetimes, is paid to the estate or designated beneficiary in a single lump sum.

Adding a Period Certain provision to a Joint & Contingent (50%..75) annuity does this: If the annuitant dies before the end of the certain period, payments to the contingent annuitant will not reduce until after the end of the certain period (5-25 years). If both annuitants die before the end of the certain period, full level payments will be paid to the designated beneficiary until the end of the certain period.

Joint & Full Survivor (100%): Level payments are made for as long as either the annuitant or joint annuitant is alive.

Joint & Survivor (100%) with Certain Period: Adding a Period Certain provision to a Joint & 100% Survivor annuity does this-- If both the primary annuitant and joint annuitant should die before the end of the specified certain period (5-25 years), full level payments will be paid to the designated beneficiary until the end of the certain period.

Joint & Survivor (100%) with Installment Refund: Adding an Installment Refund provision to a Joint & 100% Survivor annuity does the following-- Level payments are received for the annuitants' lifetimes. However, if both the primary annuitant and joint annuitant should die before receiving in periodic payments an amount equal to the original premium, then the periodic payments continue to be paid to the estate or designated beneficiary until the total payments made (to both annuitants while living and to the beneficiary after the annuitants' deaths) equals the original premium (usually, without interest).

Joint & Survivor (100%) with Cash Refund: Adding a Cash Refund provision to a Joint & 100% Survivor annuity does the following-- Level payments are received for the annuitants' lifetimes. However, if both the primary annuitant and joint annuitant should die before receiving in periodic payments an amount equal to the original premium, then the difference between the original premium (usually, without interest) and the periodic payments received during the annuitants' lifetimes, is paid to the estate or designated beneficiary in a single lump sum.

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Funds That Purchase an Immediate Annuity

Source of Funds - Qualified vs. Non-Qualified

The term Qualified (when applied to Immediate Annuities) refers to the tax status of the source of funds used for purchasing the annuity. These are premium dollars which until now have "qualified" for IRS exemption from income taxes. The whole payment received each month from a qualified annuity is taxable as income (since income taxes have not yet been paid on these funds). Qualified annuities may either come from corporate-sponsored retirement plans (such as Defined Benefit or Defined Contribution Plans), Lump Sum distributions from such retirement plans, or from such individual retirement arrangements as IRAs, SEPs, and Section 403(b) tax-sheltered annuities, or Section 1035 annuity or life insurance exchanges. Generally speaking, insurance companies use male/female (sex-distinct) rates to price qualified annuities in situations where the purchaser and/or owner is a corporation. When the annuity is being purchased by an individual, annuity rates are generally unisex. Some states, however, require that unisex rates be used for all qualified annuities.

Non-qualified immediate annuities are purchased with monies which have not enjoyed any tax-sheltered status and for which taxes have already been paid. A part of each monthly payment is considered a return of previously taxed principal and therefore excluded from taxation. The amount excluded from taxes is calculated by an Exclusion Ratio, which appears on most annuity quotation sheets. Non-qualified annuities may be purchased by employers for situations such as deferred compensation or supplemental income programs, or by individuals investing their after-tax savings accounts or money market accounts, CD’s, proceeds from the sale of a house, business, mutual funds, other investments, or from an inheritance or proceeds from a life insurance settlement. While most insurance companies apply their male/female (sex-distinct) tables to non-qualified annuities, some states require the use of unisex rates for both males and females.

If you need an immediate annuity quote for yourself, go to our Immediate Annuity Quote Form and complete the information needed to calculate an illustration. We will email, fax or mail the quote results to you. Or you can call us toll-free at 800-239-0356 to speak to an annuity specialist.

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