Single Premium Immediate Annuity (SPIA): What It Is and How the Payout Is Priced

Updated: August 17, 2026

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A Single Premium Immediate Annuity, usually written SPIA, is the plainest annuity product in the retail market. The retiree writes one check to a life insurance company. The insurer sends back a monthly payment for life, starting no later than 12 months out.

Under the National Association of Insurance Commissioners’ classification, this is what “immediate annuity” means: a one-time contribution followed by income payments within a year. Every other annuity on the shelf, indexed, variable, or fixed-deferred, is a different product with different mechanics.

The transparency of a SPIA is its selling point and its limit. There is no accumulation phase, no crediting formula, no market participation. What the buyer is really buying is longevity insurance sold as an income stream.

This page walks through what a SPIA is, the five payout options and what each of them costs in monthly income, and how insurers price the quote. It also covers how the payments are taxed, how a qualified SPIA interacts with Required Minimum Distributions, and where state guaranty association coverage begins and ends.

What a SPIA actually is

A SPIA is a contract between a retiree and a life insurance carrier. In exchange for a single premium, the carrier promises a stream of fixed payments beginning almost immediately. Payments continue based on the payout option selected at purchase.

The Securities and Exchange Commission’s investor education arm groups annuities along three axes: immediate versus deferred, fixed versus variable, and by payout structure. SPIAs sit inside the immediate-fixed corner, the least complex box on the grid.

Once issued, a SPIA is generally irrevocable. The retiree cannot cancel the contract, cannot withdraw the principal, and cannot lump-sum out the remaining value. That is the trade-off in exchange for the guaranteed lifetime income.

The five payout options and what they cost the buyer

The retiree picks one payout structure at purchase. The five common options are:

• Life-only. Payments continue as long as the annuitant is alive. When the annuitant dies, payments stop and nothing goes to heirs.
• Life with period certain. Payments continue for life, but with a minimum guaranteed period, typically 10, 15, or 20 years. If the annuitant dies inside that window, payments continue to a beneficiary for the remaining balance.
• Joint and survivor. Payments continue as long as either spouse is alive. Some contracts drop the payment to 50 or 75 percent of the original amount at the first death.
• Cash refund. If the annuitant dies before total payments equal the original premium, the beneficiary receives the difference in one lump sum.
• Installment refund. Same as cash refund, except the beneficiary receives the shortfall in monthly installments rather than a lump sum.

Life-only pays the highest monthly amount. Every other option carries a beneficiary guarantee, and that guarantee is priced into a lower monthly payment.

How insurers price your monthly payment

Three inputs determine what the retiree is offered on a SPIA quote:

• Mortality tables. The insurer estimates how long the annuitant is expected to live using industry actuarial tables. Older buyers receive higher monthly payouts because the expected payment period is shorter.
• Prevailing interest rates. The insurer invests the premium in high-grade bonds and other fixed-income instruments. When the yield curve is high, payouts rise. When rates drop, quotes drop with them.
• Expenses and profit margin. The insurer builds in operating costs, distribution costs, and a target profit margin. Agent commissions are included in this layer, not deducted from the retiree’s premium.

The NAIC describes this as the same actuarial framework used to price pension liabilities. The economics are transparent in a mechanical sense: an insurer that mispriced longevity or misread rates would erode its own reserves over time.

Because life-only removes the death benefit entirely, the insurer keeps whatever principal is left when the annuitant dies. That residual lets the carrier offer a higher monthly payment than any option carrying a beneficiary guarantee.

A worked example: $100,000, five ways

Assume a 65-year-old writes one check of $100,000 to fund a SPIA. The illustrative payout rate for life-only is 6.5 percent annually at 2026 mid-range interest rates. That produces $6,500 per year, or roughly $541 per month, for as long as the annuitant lives.

The same $100,000 buys smaller monthly checks under every other payout option because each option carries a beneficiary guarantee. Illustrative figures for the same 65-year-old buyer, holding all other assumptions constant:

• Life-only: about $541 per month
• Life with 10-year period certain: about $522 per month
• Cash refund: about $509 per month
• Life with 20-year period certain: about $487 per month
• Joint and survivor at 100 percent to a spouse also age 65: about $475 per month

These figures are illustrative and reflect the mechanical trade-off that industry quotes show consistently. Actual live quotes shift daily with the yield curve. Two quotes taken a month apart on the same buyer profile can differ by 5 to 10 percent.

The pattern is stable across insurers and interest-rate environments: life-only sits at the top, joint and survivor at the bottom. What the chart does not show is the risk profile.

A 65-year-old who dies at 68 under a life-only contract leaves nothing to heirs. Under the 20-year period certain, a beneficiary would receive 17 more years of payments. The extra $54 per month traded away under that option is the price of that guarantee.

How SPIA income is taxed

Taxation depends on whether the premium came from qualified or non-qualified money. The rule is set out in IRS Publication 575, Pension and Annuity Income.

Non-qualified SPIAs are purchased with after-tax dollars from a taxable account. Under Publication 575, each monthly payment is split between a non-taxable return of your original investment and a taxable interest portion. The split is called the exclusion ratio.

The exclusion ratio equals the investment in the contract divided by the expected return over the annuitant’s projected life. If the ratio is 0.75, then 75 percent of each payment is treated as tax-free return of basis and 25 percent as ordinary income. The exclusion continues until basis is fully recovered.

Qualified SPIAs are funded with pre-tax money, typically rolled from a traditional IRA, 401(k), 403(b), or 457(b). Because that money has never been taxed, every dollar of payment is fully taxable as ordinary income. There is no exclusion ratio and no return-of-basis line.

How a qualified SPIA satisfies RMDs

Required Minimum Distributions apply to traditional IRAs and most employer retirement plans once the account holder reaches age 73. If a portion of the account has been used to buy a qualified SPIA, the payments from that annuity satisfy the RMD on that annuitized portion.

The retiree does not need to run a separate RMD calculation on the annuitized value. The annuity payments themselves count toward the RMD for the annuitized account share. This point is settled under Treasury Regulation Section 1.401(a)(9)-6.

Any remaining non-annuitized IRA balance still carries its own RMD, calculated the standard way from the Uniform Lifetime Table published in the appendices of IRS Publication 590-B.

State guaranty association coverage

A SPIA is not backed by the FDIC. It is backed by the claims-paying ability of the issuing insurance company. If that insurer becomes insolvent, the retiree is protected by the life and health insurance guaranty association of their state of residence, up to a state-specific cap.

Coverage caps vary by state but are commonly $250,000 or $300,000 in present value on an annuity contract. A retiree who deposited $500,000 with a single insurer and later saw the insurer fail could face a coverage gap.

The National Organization of Life and Health Insurance Guaranty Associations maintains a directory of state associations and current limits. Splitting a large premium across two or three carriers is one way to keep each contract inside the state coverage cap.

The same transparency logic applies here as in how to vet a gold IRA dealer without a finance background. A safety net exists, but only up to a stated cap. The retiree needs to know that cap before signing.

The commission side

Agents earn a commission on a SPIA sale, typically 1 to 4 percent of the premium. On a $100,000 SPIA, that is $1,000 to $4,000 paid by the insurer to the agent at contract issue.

This is materially lower than commissions on deferred annuity products. Fixed-indexed and variable contracts commonly pay 5 to 8 percent to the writing agent. The compensation gap partly explains why some agents nudge clients toward deferred products even when a plain SPIA better fits the stated income need.

The retiree does not see this commission as a line-item on the contract. It is built into the payout rate offered. A lower-commission product structurally supports a higher monthly payment for the buyer.

When a SPIA fits

A SPIA fits a specific retiree profile. Someone who has a lump sum, wants guaranteed lifetime income, does not need liquidity from that portion of the portfolio, and values simplicity over accumulation potential.

It does not fit a retiree who needs continuing access to the principal, wants a large death benefit for heirs, or wants automatic inflation adjustment on the monthly payment. A cost-of-living rider can be added for the latter, but it reduces the starting payout by a meaningful margin.

Sources cited

1. SEC investor.gov, Annuities overview page, defining immediate versus deferred annuities and the three-family classification (immediate/deferred, fixed/variable, payout structure) used in retail insurance product markets.
2. Internal Revenue Service, Publication 575, Pension and Annuity Income, covering the exclusion ratio calculation for non-qualified annuity payments and the fully-taxable ordinary income treatment of qualified annuity payments.
3. National Association of Insurance Commissioners, Annuities topic page, defining immediate annuity payout structures and describing the actuarial pricing framework insurers use to convert a single premium into a stream of guaranteed payments.
4. National Organization of Life and Health Insurance Guaranty Associations, policyholder information hub linking to state-by-state coverage limits and the association mechanics that back annuity contracts if the issuing insurer becomes insolvent.
5. 26 CFR Section 1.401(a)(9)-6 (Cornell Legal Information Institute), Required Minimum Distribution rules for defined contribution plans and IRAs holding annuity contracts, covering how annuitized amounts satisfy the RMD on the annuitized portion of the account.