How is a single premium deferred annuity funded?

A single premium deferred annuity is funded through a lump sum payment, which distinguishes it from other types of annuities that require ongoing contributions or payments over time. In this arrangement, the investor pays one substantial amount upfront. This initial contribution remains invested for a specified period, accumulating interest or investment returns until the annuitant decides to start receiving payments at a future date.

This structure is particularly beneficial for individuals who have a significant amount of capital they want to invest at once, allowing them to take advantage of potential growth over the deferral period. Other funding methods like multiple contributions, monthly payments, or annual contributions involve a continuous commitment, which is not the case with a single premium deferred annuity.