What defines an immediate annuity in terms of payment?

An immediate annuity is characterized by payments that begin shortly after the purchase of the annuity, typically within one payment period. When an individual opts for an immediate annuity, they essentially convert a lump sum of money into a stream of income that starts almost immediately, usually within a month. This type of annuity is designed to provide immediate cash flow to the annuitant, making it particularly useful for retirees who need steady income right away.

The other options do not accurately represent the defining feature of an immediate annuity. Monthly payments over a specified term could imply a deferred annuity, where payments begin at a future date. A lump sum payment received upon death refers to the death benefit associated with certain annuities, but it does not define how the immediate annuity itself operates. Lastly, payments based on previous earnings pertain to different types of financial instruments or pension plans, not the immediate annuity structure, which instead focuses on the immediate provision of income from the purchased amount.