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7 Immediate annuity 7,1 Definition A single premium purchases the income, which commences immediately after purchase. The income is purchased with a single premium at outset. This single premium could come from the maturity proceeds of an endowment or some other savings or another source eg an inheritance. In many markets annuity contracts are predominantly withoutprofit or indexlinked. Withprofit and unitlinked annuities are also possible. For a withprofit annuity the income paid to the policyholder will be a guaranteed amount plus a bonus added by the insurer. For a unitlinked annuity, the insurer guarantees paying a number of units. However, the policyholders income is not guaranteed in monetary terms, because the income is equal to the number of units multiplied by the unit price, which will vary on a daily basis. Impaired life annuities are a more recent innovation, where higher annuities are available for those in poor health. These may be available as these individuals in poor health would be expected to have a shorter life expectancy than those in good health. Therefore, the insurer will have to make the annuity payments for a shorter period of time and can offer a higher amount for each payment in return for the same single premium. Lower life expectancy is obviously not guaranteed for someone in poor health though and the insurer will need to consider the risk that this individuals lives for longer than expected when setting its rates. 7.2 Use to meet customers needs Immediate annuities meet a financial need for an income for the remainder of the life of the insured, for example after retirement, or for an income during a limited period, for example to pay the school fees of the insureds children. Contracts for a limited period are called temporary annuities. 7.3 Existence of a group version A group version of the contract can be used by an employer to fund for pensions for employees at or after retirement. Essentially, such contracts are just collections of individual annuities.