Annuity Due vs Ordinary Annuity Explained

Today’s topic is a little bit of a strange one.

What is the difference between annuity due and an ordinary annuity?

This is one of those topics that comes up when people go down the internet rabbit hole researching annuities. It’s not something that most agents even talk about.

In fact, most agents don’t even know what an annuity due is.

But I live and breathe annuities, so let’s break it down.

If you want to see what annuity guarantees actually look like based on your age and timeline, you can run live quotes using our annuity calculators here:
https://www.stantheannuityman.com/annuity-calculator/

Key Takeaways

An annuity due refers to income starting immediately
What most people call an ordinary annuity in retirement planning is typically an Immediate Annuity
The most common lifetime income product is a Single Premium Immediate Annuity (SPIA)
Lifetime income payouts are driven primarily by life expectancy
Immediate annuity quotes must be shopped across multiple carriers because they change frequently

What an Ordinary Annuity Usually Refers To

When most people ask about an ordinary annuity, what they are usually referring to is an Immediate Annuity.

The grandfather of all annuities is the Single Premium Immediate Annuity, commonly called a SPIA.

This product has been sold in this country for hundreds and hundreds of years, and its roots can even be traced back to Roman times.

A SPIA is essentially a pension** that you create for yourself**.

You transfer the risk to the life insurance company issuing the annuity, and they agree to pay you income for as long as you are breathing.

If it is structured jointly with a spouse, the income continues as long as one of you is alive.

You can also structure the policy so that 100 percent of any unused funds go to your beneficiaries, meaning the insurance company keeps nothing.

Typically, with a Single Premium Immediate Annuity, the earliest that income can begin is 30 days after the policy is issued.

What an Annuity Due Is

Now let’s talk about the phrase annuity due.

Technically, an annuity due means that income starts immediately.

That’s the textbook definition.

But in the real world, this term almost never comes up when people are shopping for annuities.

In my three decades in the annuity business, I’ve never once had someone ask me for an annuity due quote.

In fact, I’m not even sure how many carriers would actually provide a quote structured exactly that way.

So while the term exists academically, it doesn’t really exist in practical annuity planning.

In the real world, when someone wants income to start immediately, we simply look at Single Premium Immediate Annuities.

Why You Need to Shop Multiple Carriers

When evaluating Immediate Annuities, it’s critical to shop multiple carriers.

Annuities are commodity** products**.

There is no one company that always offers the best payout.

The best annuity is the one that provides the highest contractual guarantee for your specific situation.

Immediate annuity quotes are like a gallon of milk.

They expire every seven to ten days.

That’s why you cannot run a quote months ago and expect that same number to still exist today.

Carriers constantly adjust pricing as they fill specific age tranches, such as:

60 to 65
65 to 70
70 to 75
75 to 80

If a company needs more people in a certain age group, they may increase payouts to attract buyers in that group.

If they are already full in that tranche, the payout may be lower.

When Income Starts Immediately vs Later

If you need income to start immediately, the product you are typically looking for is a:

Single Premium Immediate Annuity (SPIA)

If you want income to start at a future date, there are several annuity types that can provide lifetime income, including:

Each of those allows income to begin later based on your timeline.

The Bottom Line

The difference between annuity due and ordinary annuity is mostly academic.

In real-world retirement planning, the conversation is typically about Immediate Annuities.

If income needs to start right away, the most common solution is a Single Premium Immediate Annuity.

The key is to shop multiple carriers and focus on the highest contractual guarantee for your specific situation.

If you want to compare real annuity quotes and see what income guarantees are available today, you can run live quotes using our annuity calculators here:
https://www.stantheannuityman.com/annuity-calculator/