A Single Premium Immediate Annuity (SPIA), out of all of the annuities that we have talked about, is the one that is most insurance-like of all annuities. As we discussed before an annuity protects you from running out of income, or money, before you die. When you buy a single premium immediate annuity you are protecting yourself by assuring  yourself a source of income for the rest of your life. The amount of income  you receive is, of course, tied to how much you invest in the immediate annuity to begin with.

When you buy an single premium immediate annuity your are purchasing what is also called a life annuity. The word annuity refers to a regular series of payments. So, in essence, you are buying payments for life when you purchase a life annuity.

The payouts from the annuity are guaranteed to last for the amount of time specified in the contract, usually for life, but it may be for a shorter term read your contract carefully, and make sure it guarantees payments to last for the rest of your life. If you opted for a guaranteed period, there should also be a mention of a death benefit in case death comes sooner than expected. Your beneficiary should be named in your contract. The contract will also specify the amount of those payouts, thus making planning the rest of your retirement much easier because you know upfront what to expect.

Do keep in mind that even thought you do receive contractual guarantees, these guarantees are still dependent on the claims paying ability of the insurance company that issues your annuity. As a responsible consumer, you do need to make sure you choose only top-rated companies that have sufficient assets to back their policies.

Even though most states have guaranty associations in place should an insurer fail, the protection provided by these associations is limited, and may not provide the same level of benefits that were specified in your annuity contract. Choose wisely, and don’t take your agent’s word for it. Do the research, and select only insurance companies that are rated highly, and have a history of paying claims.

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This entry was posted on Monday, May 24th, 2010 at 5:47 PM and is filed under Annuity, Finance, Insurance, Personal Finance, Retirement. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.