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Single Pay Annuity

Single Pay Annuity

Single pay annuity is also called as single premium annuity. A single pay annuity is a type of annuities in which the buyer pays a large sum at a time so that it can pay for entire annuity. A single pay annuity typically requires a minimum payout of 5,000 USD to 10,000 USD and the annuity payments to the insurance company can be deferred for a long time. Between the payments out of an annuity and the time of payments into an annuity, a single pay annuity collect interests which will be then paid back to the annuitant.

Annuities are considered as contracts bought at a time or over a certain period of time to give a stable income of specific amount over certain period of time. Annuities can be also considered as loans in reverse in which an annuitant or an individual pays an amount of money to an annuity company in return of an annuity contract. A purchased annuity returns the amount of money back to the individual or the annuitant over an amount of time with interests. Sometimes annuity payments continue for a specific period of time; however, sometimes annuity payments continue for the remaining of the annuity holder's lifetime.

Examples of Source of Funding

There are several ways for funding a single pay annuity. If the fund originates from tax-deferred accounts such as IRAs, the fund then is not taxable till the annuity payment is paid to the annuitant. This type of annuity is called as a 'qualified annuity'. If not, the annuity exists as a 'non-qualified annuity' which can be funded by any source. Part of payments to an annuity holder from a non-qualified annuity is not subjected to any tax. Few examples of source of funding for the single pay annuity include:

  • Large sum from the retirement plan payment
  • Sale of an estate or a house
  • Transfer of a matured Certificate of Deposit
  • Sale of mutual funds and investments
  • Inheritance
  • Proceeds from the life insurance settlements

Types of Annuity Payment

A single pay annuity is not the single type of annuity payment. Annuity premiums also can be paid for a longer period of time all the way through installments. A single pay annuity is just a way of transferring large amount of existing funds into the annuity account usually to be paid out at later time.

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