With an annuity due, each payment lands at the start of its period rather than at the close of it, which is the opposite timing from a typical payment stream. That early arrival gives the money one extra stretch of time to earn interest before the schedule ends.
Beginning of period vs. end of period
An ordinary annuity pays at the close of each period, the way a typical bond coupon or a loan payment does. An annuity due flips that: the payment shows up at the start of the period instead. Rent and insurance premiums work the same way, since you pay for coverage before the period begins, not after it ends.
Why the timing changes what it is worth
That extra head start matters mathematically. Say two contracts each pay $1,000 a year for three years at a hypothetical 5 percent rate, one as an ordinary annuity and one as an annuity due. Every payment in the annuity due version earns one additional period of interest simply because it lands earlier, so both its present value and its future value come out higher than the ordinary version, even though the payment amounts and the number of payments are identical.
Where you actually run into one
Most annuities you buy are not structured this way, but some immediate annuities are. If your contract is set up to pay the first check right when the policy starts, rather than waiting until the end of the first period, that structure technically makes it an annuity due. It is a detail worth noticing when you compare quotes, since it changes how each payment stream should be valued.
The gap between the two structures is usually small in dollar terms, especially on a monthly payout, since one extra period of interest on a single payment is not a large sum. It matters more when the quotes you are comparing use different timing assumptions without saying so, since a slightly higher payment on paper might just reflect the earlier start rather than a genuinely better offer from the carrier.
In short: an annuity due pays at the start of each period instead of the end. That earlier timing gives every payment a small head start on interest, which makes it worth slightly more than an otherwise identical ordinary annuity.
Frequently asked questions
What does annuity due mean?
It describes a payment schedule where each installment is paid at the start of the period instead of the end, the reverse of how most recurring payments are timed.
How does the timing differ from an ordinary annuity?
An ordinary annuity pays at the end of each period. An annuity due pays at the start, so every payment gets one extra period to earn interest before the stream ends.
Where would you actually run into this structure?
Some immediate annuities are built to send the first check the moment the contract starts, instead of waiting until the first period has passed, which makes them an annuity due in practice.
Written and reviewed by
James Forren Warren
Licensed Retirement Income Strategist · License #20551202
James Forren Warren is a licensed Retirement Income Strategist with Tax Free Wealth Plan. For the past five years he has helped individuals and families turn their savings into retirement income they can count on. He writes and reviews the annuity research on this site and keeps it plain: what a product does, what it costs you, and who it actually fits.
Educational only, not investment, tax or legal advice. Tax Free Wealth Plan LLC is a licensed insurance agency, not a registered investment adviser or broker-dealer. Annuities are not bank deposits, are not FDIC insured and are not guaranteed by any government agency. Guarantees are backed solely by the claims-paying ability of the issuing insurance company. Features, rates and availability vary by state and change over time; the contract and disclosure documents govern.