What is the common characteristic of an immediate annuity?

An immediate annuity is characterized by the fact that payments begin shortly after the purchase of the annuity contract. Specifically, this means that payments start within a year, often immediately or within a few months. This feature distinguishes immediate annuities from deferred annuities, where there is a waiting period before any payments start.

With immediate annuities, the individual makes a lump-sum payment to the insurance company in exchange for regular, guaranteed payments that commence almost right away. This structure is particularly beneficial for individuals seeking to use their annuity as a source of income during retirement.

The other options do not accurately describe an immediate annuity. For instance, payments beginning after a specified waiting period pertains to deferred annuities. Payouts based on investment returns are a characteristic more aligned with variable annuities, while the ability to pay premiums in periodic installments usually refers to other types of insurance or annuity products, often connected to deferred annuities where premiums are paid over time before receiving any benefits.