We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is a Single Premium Annuity?

Mary McMahon
By
Updated: May 17, 2024
Views: 42,543
Share

A single premium annuity is a form of annuity, a contract which guarantees income for a set period of time, which is established by making a single lump sum payment. This is in contrast with other types of annuities, in which people make steady payments over an extended period of time which establish the funds used to create the annuity. Single premium annuities are issued by many insurance companies which offer annuities, as well as financial firms.

Annuities have a number of advantages which make them appealing for people who want to ensure a steady source of income during their retirement. When people invest in an annuity, they typically lock in a high rate of interest, and they are not taxed on the earnings of the annuity until they receive annuity payments. Often, the payments themselves are taxed at a reduced rate, as many governments like to reward citizens for planning ahead for retirement.

Single premium annuities can be purchased at almost any age. A single premium annuity can be a good investment option for someone who has just inherited money, reached the maturity date on a CD or retirement account, sold property, or settled a life insurance claim. The amount of the premium varies, with the amount of the annuity payments being determined on the basis of the life of the contract and the amount of the premium. The larger the premium paid to establish a single premium annuity, the larger the payments will be, as a general rule.

Some single premium annuities last for life, ending with the death of the policyholder. Others are set to last for a specific period of time, such as 20 years. It is also possible to have joint policyholders, in which case when one person dies, the annuity will be paid to the surviving policyholder. People can also designate survivors to receive the remainder of the annuity payments in the event of their deaths. The payments may be fixed, or varied; for example, someone who wants to work half time could start out with small annuity payments, which increase as the person gradually reduces his or her workload and moves into full retirement.

The big disadvantage to a single premium annuity, or any other kind of annuity, is that cashing out early can carry stiff penalties. The company which issues the single premium annuity may have a surrender charge, a penalty fee based on a percentage of the total funds in the annuity, and people will also be expected to pay taxes on the funds when they cash out an annuity. For this reason, people who think that they may need to access the funds they would use to establish an annuity may want to consider another investment instrument which will allow for more flexibility.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGeek researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Editors' Picks

Discussion Comments
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
Share
https://www.wisegeek.net/what-is-a-single-premium-annuity.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.