Definition
An income annuity is a lifetime income arrangement in which a lump sum is exchanged with an insurer for a guaranteed stream of payments, encompassing both immediate-start and deferred-start structures.
Why it matters
Income annuity is the umbrella term for the most direct way to convert savings into guaranteed lifetime income. The category covers two arrangements that share a structure but differ in timing, and naming the category is the first step in distinguishing which timing fits a given income need.
How it works
An income annuity converts a premium into a contractual income stream that the insurer is obligated to pay. The category divides by when income begins. A single-premium immediate annuity begins payments shortly after purchase. A deferred income annuity begins payments at a future date, with the deferral period exposing the premium to mortality pooling for longer before payments start. In both, the insurer assumes the longevity risk, prices the contract to absorb it, and pays from its general account; capital access is extinguished at issue in exchange for the guarantee.
In practice
The decision within the income annuity category is timing: whether income is needed now or at a known future date. An immediate start funds a present income gap; a deferred start funds a future one and produces more income per dollar of premium because of the deferral. The question to put to a professional is which structure matches the income need, and — for either — what fraction of the frictionless pooling benefit the quote delivers at the offered terms.
In the Longevity Standard Framework
Income annuity is a product category spanning two arrangements that the claims lens characterizes separately. Both the single-premium immediate annuity and the deferred income annuity carry the claim profile risk sharing — transferred; adjustment mechanism — fixed-contractual; liquidity — none; cost structure — embedded spread, and differ in the deferral that the deferral multiplier quantifies. Because the category covers two arrangements with the same structural fingerprint but different realized-value behavior, its structural reading lives in the single-premium immediate annuity claim profile and the deferred income annuity claim profile rather than in a single block here.
Related terms
- Single-premium immediate annuity
- Deferred income annuity
- Annuitization
- Mortality credits
- Single-premium immediate annuity claim profile
- Deferred income annuity claim profile
- Life annuity
- Payout rate