What characterizes an Immediate Annuity?

An Immediate Annuity is characterized by the beginning of payments shortly after it is purchased, typically within one year. This type of financial product is designed to provide the annuitant with a steady stream of income almost immediately after the initial investment is made.

The essence of an Immediate Annuity is its purpose as a means of converting a lump sum into a series of payments that can begin as soon as a month after purchase or at any point within the first year. This feature makes it particularly appealing for individuals seeking immediate income, such as retirees. It allows for financial planning that aligns closely with the timing of income needs once the purchase is made.

The option stating that it begins payments after five years does not align with the concept of an Immediate Annuity, as that would instead describe a Deferred Annuity. Similarly, the notion that it requires multiple payments to fund is inaccurate because an Immediate Annuity is typically purchased with a single lump sum payment. Lastly, stating that it cannot be financed with a lump sum contradicts the nature of an Immediate Annuity, which is fundamentally designed to be funded by a single upfront investment.