Immediate Payment Annuity

A typical annuity works like this: you give an insurance company a big chunk of money, then at some point down the road, they start paying you regular cash installments. The structure is usually meant to provide steady, reliable income in retirement. In a classic annuity arrangement, the big chunk of money gets handed over now, while the regular payments don't start for years (or even decades) in the future.

An immediate payment annuity skips the long wait in-between. You pay the chunk of money, then you start receiving the regular payments (almost) immediately. Typically, these pay out as long as the person lives, so the insurance company uses actuarial information to guess the most likely time that you'll croak.