What is a defining characteristic of an immediate annuity?

An immediate annuity is characterized by being purchased with a single premium payment. This means that the individual pays a lump sum amount upfront, and in return, they begin receiving payments almost immediately, typically starting within one year of the purchase. This structure provides a reliable source of income soon after the investment is made, making it an appealing option for those seeking to convert a lump sum of money into a steady income stream.

The focus on a single premium distinguishes immediate annuities from other types of annuities, which may allow for multiple payments over time before the income starts. Moreover, the defining feature of immediate annuities is that they offer fixed payment amounts rather than variable interest rates or other financial mechanisms. While some immediate annuities may provide income for life, this characteristic is not essential to all immediate annuities; therefore, it does not serve as their defining characteristic.