What Is a Single Premium Annuity? Annuity Glossary

What is a single premium annuity?

A single premium annuity is funded with exactly one deposit, paid when the contract is issued, and the carrier does not accept additional money into that same contract afterward. It is the standard way MYGAs, fixed index annuities and single premium immediate annuities are funded. Once your deposit is in and the contract is issued, that amount is locked in for the full length of the term you selected.

When single premium funding makes sense

Single premium works best when you already have one defined sum of money to place, rather than money you plan to add to over time. Typical sources include a rollover from an old 401(k) or IRA, proceeds from selling a property, an inheritance, or the payout from a maturing CD or bond. The appeal is simplicity: one transaction, one rate locked in, one term to track. Most people buying a fixed annuity in retirement are working with exactly this kind of lump sum, which is why single premium is the funding structure you will run into most often.

Single premium vs. flexible premium

The alternative structure is a flexible premium annuity, which lets you keep adding money to the same contract over time instead of funding it all at once. Flexible premium shows up more often in deferred income annuities and in cash value life insurance, where ongoing contributions fit the product's purpose. For most people funding a retirement annuity with a single defined pool of money, single premium is the simpler choice, and it can also support a better rate lock, since the carrier is able to invest the entire deposit right away instead of waiting for future contributions to arrive.

If you later come into more money and want to add it to an existing single premium contract, most carriers will not let you. Your options are opening a second contract or using a 1035 exchange to move both sums into a new one, so it is worth thinking through how much you expect to deposit before you pick a term.