What Is A Deferred Income Annuity?

Washington, D.C.

A deferred income annuity, or DIA, is a newer type of annuity that is essentially cross between a single premium immediate annuity and a single premium deferred annuity.

That is the definition that Curtis V. Cloke provided here during the annual retirement industry conference sponsored by LIMRA, LOMA and the Society of Actuaries. Cloke, the founder and chairman of Thrive Income Distribution System LLC, Burlington, Iowa, and two other executives detailed how DIAs can be used to fill gaps in a client’s retirement income plan.

The traditional SPIA typically begins paying an income stream within 13 months of deposit, and it makes these payments for either a designated period or for the lifetime of the annuitant, said Cloke, adding that it has no traditional cash value.

A SPDA, on the other hand, offers an income option inside the contract, he said. Its payouts are based on conservative factors, and rate and guarantee are the primary focus of the contract, he said.

By comparison, a DIA sits between these products in that it allows income payments to be deferred from over 13 months to typically 50 years, Cloke said. Like the SPIA, its payout can be designated for a certain period or for the lifetime of the annuitant, and the policy has no traditional cash value, he added.

When the DIA is written with a designated income period, “the known value for the income stream allows a precise rate of return–the IRR–calculation of deferral and distribution,” Cloke pointed out. “The same IRR applies during deferral and distribution phases.”

Also, such a DIA “retains full value of the income assets for the heirs, because the designated payments are guaranteed.”

Cloke showed some examples indicating that a client who needs a certain amount of retirement income for a certain period would pay a smaller single premium under the DIA to do that than under a traditional SPDA that is annuitized for the same designated period.