A single-premium immediate annuity (SPIA) converts a lump sum into income payments that typically start within a year. It is often used to cover essential expenses with a dependable paycheck for a set number of years or for life.
Once payments begin, the income stream is generally fixed by contract; the payments are backed by the claims-paying ability of the issuing insurance company and are not FDIC insured. Because the lump sum is exchanged for income, access to the original principal is usually limited.
Example
At 70, a retiree uses $150,000 to buy an immediate annuity that pays a fixed monthly amount for life, covering rent and utilities.
This definition is for general educational purposes only and is not financial, tax, or legal advice. Tim Hartle is an independent insurance professional. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company and are not FDIC insured. Rules and product features vary by situation and by state. Please consult a qualified advisor about your own circumstances.