Single Premium Annuity
Single Premium Annuity. All about the Single Premium Immediate Annuity (SPIA), Single Premium Deferred Annuity (SPDA) and the pros and cons of each.
Single-Premium Deferred Annuity
Single-premium deferred annuities (SPDA) are fixed annuities that can be purchased with a single premium. There will be a guaranteed interest rate, and taxes are deferred until withdrawal. Generally, the longer the guaranteed interest rate, the lower the rate itself.
Thus, the most important factors you need to consider when purchasing a SPDA are the following: the interest rate offered, the length of time over which the interest rate will be guaranteed, the stipulated surrender period. The length of the guaranteed interest rate should at least be as long as the surrender period, as you would otherwise be taking a significant risk when the guaranteed interest rate expires.
Difference between SPDAs and Variables Annuities
When you purchase a SPDA, the premium is deposited in the general account of the insurance company. In contrast, when you purchase a variable annuity, the premium is deposited in a separate account. This means that the insurance company would give you some freedom as to where your money can be invested. You are free to choose from among the mutual funds available, and can transfer money between mutual funds at any point in time.
Single Premium Immediate Annuity / Single Premium Income Annuity
Single Premium Immediate Annuities (SPIA) are a type of single premium annuity where there is no IRS penalty tax for withdrawals before the age of 59.5. The annuitant is also guaranteed fixed monthly payments which begin the moment the investment has been made.
The monthly payment is calculated based on several factors: the annuitant’s initial investment, age, current interest rates, and the length of time for which the monthly payment is to be paid.
Some special accounts offer life-plus-five or life-plus-ten policies, whereby monthly payments continue even after an annuitant’s death.
However, a single premium annuity like the Single Premium Immediate Annuity will not make sense in a low-interest environment, as you would then be locked into a low-interest for the rest of your life in.