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Difference Between Deferred Annuity And Immediate Annuity

Published On Jun 21, 2021 3:00 PM By InsuranceDekho

Annuity plans help you finance your retirement plans and save up for your retirement. Retirement planning is crucial if you want to avoid financial crises when you do not have an active source of income anymore. A substantial retirement corpus helps you in a number of ways like tackling inflation, helping your family and more.

What is an Annuity?

An annuity plan is a type of financial instrument where you have to pay a certain amount of money, whether in a lump sum or in instalments. This amount is then invested by the insurance provider and the returns are gathered. The returns from the plan form a corpus that you can access after retirement. This can be done in two ways, either through an immediate annuity or deferred annuity.

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Difference Between Deferred Annuity and Immediate Annuity

One can opt for two kinds of annuity plans, deferred annuity and immediate annuity. Take a look at the difference between the two options:

Deferred Annuity

Immediate Annuity

Under a deferred annuity plan, one pays prefixed instalments over a certain period of time which is the term of the plan. 

Under an immediate annuity plan, the policyholder pays a lump sum to the insurance provider.

The annuity is invested after the policyholder is done paying their instalments. This utilises 2/3rd of the funds that have been paid. The rest can be withdrawn before retirement. 

The lump-sum is used immediately by the insurance provider to purchase annuities which are then given to the policyholder.

It can take considerable time under this plan for the funds to accumulate and provide for a regular income after the retirement of the policyholder. 

This option is suitable for those who have only a short time for their retirement. It’s a one-time lump sum payment and immediate payouts help finance immediate needs.

Can be more affordable as the charges are spread over a longer period of time.

Can be more expensive as a one-time lump sum payment has to be made.

Which One to Choose: Deferred Annuity and Immediate Annuity?

The choice depends on the policyholder's financial condition and also, their age. While a deferred annuity is a more affordable option, it takes considerable time to bear fruit which might not be ideal for people nearing retirement. This is a great option to start it from an early age when you can afford to only invest. However, if one is nearing retirement with little time to invest, they should go for an immediate annuity plan. Although it might seem expensive, it is a one-time payment option.

Also Read:- Tips For Retirement Planning For Couples 


Retirement planning is the key to a peaceful and stable retired life. An annuity plan helps you achieve that with your current earnings. With the insurance provider investing your funds, you are left free of hassle.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.      

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