What defines an immediate annuity?

An immediate annuity is characterized by payments that begin shortly after the annuity is purchased, typically starting one payment interval after the purchase date. This means that once the individual funds the annuity, they will start receiving regular payments almost immediately, which can be on a monthly, quarterly, or annual basis, depending on the terms of the contract.

While options related to specific payment intervals, such as monthly payments or fixed terms, describe certain features of annuities, they don't encompass the fundamental definition of what makes an annuity "immediate." Immediate annuities focus on the timing of the first payment rather than the frequency or duration of the payments. Therefore, the correct understanding lies in the fact that immediate annuities provide an income stream that starts promptly following the investment.