An immediate fixed annuity, also called a payout annuity, is popular among seniors as a retirement income booster. This annuity provides a steady stream of income with regular fixed payments, which usually begin within a month after an annuity contract is purchased. The annuity contract is usually purchased with a lump sum amount. The investor then gets the immediate benefit of stable, consistent income, which can be guaranteed for life.

The actual amount of the payments from immediate fixed annuities depends on several factors: 1) size of the initial investment, 2) the current interest rate, 3) length of the contract, 4) frequency of payments, and 5) life expectancy of the investor. Understandably, larger investment amounts with shorter terms yield the highest payments. Since life expectancy is a key factor, the oldest investors tend to benefit with larger payments due to their shorter life expectancy.

The contract length of an immediate fixed annuity can be a specified period of time, ranging from 5 - 20 years, or a lifetime. The frequency of the payments may be monthly, semi-monthly, quarterly, semi-annually, or annually. The monthly payment option tends to be the most common. Immediate fixed annuities are usually irrevocable contracts. Once the annuity is purchased, it is non-refundable (except for 10-day cancellation period). Liquidity and total access to the funds are lost.

There are different types of immediate fixed annuities. One type has a “life only” payout option; payments are made only during the lifetime of the annuity holder. If the investor dies shortly after beginning the contract, the insurance company claims any remaining undistributed funds. After all, the insurance company has only guaranteed payments for the existing life of the annuity holder. The drawback is obvious -- nothing goes to the heirs of the annuity holder. To avoid this disadvantage, a second type is the “life with lump sum refund” payout option, which ensures that the investor’s heirs receives the balance of undistributed funds in the event of an early death. A third type, called “joint and survivor,“ allows the payout of regular payments for life to both the investor and a spouse.

Any annuity is an investment issued by insurance companies. Similar to other investments, there are certain risks involved. The insurance company guarantees the value of its annuities, which are only as sound as the company that backs them. An investor must be prudent in selecting a reputable company that is well-managed, highly rated, and offers profitable rates of return. As protection against insolvent companies, guaranty associations are set up in states throughout the country. Guaranty associations continue making payments to annuity holders up to $100,000, while working to move the annuity contracts to another financially sound insurer.

The financial health of any insurance company can be checked through rating agencies, including Moody’s Investors Service, Standard & Poor‘s, or TheStreetRatings.com website. The services of a qualified financial advisor can be instrumental to choosing the insurance company and options most beneficial to the investor when purchasing an immediate fixed annuity.