Overview: Annuities are classified partly by how they are funded. The three basic structures — single premium, level premium, and flexible premium — determine who the right client is for each product.

A single-premium annuity is funded with one lump-sum payment. This is the appropriate structure when a client has a large sum of money — from a 401(k) rollover, an inheritance, an insurance settlement, or the sale of a business — that they want to convert into a retirement income stream or place in a tax-deferred vehicle. Single-premium deferred annuities allow the lump sum to grow during an accumulation phase; single-premium immediate annuities begin paying income almost immediately.

A level-premium annuity is funded through equal, scheduled contributions (monthly, quarterly, or annually). Because contributions are fixed, this structure suits salaried employees with stable, predictable income who want a systematic, disciplined way to build retirement savings. Missing a required payment can cause problems, so level-premium annuities are generally unsuitable for clients with irregular income.

A flexible-premium annuity allows contributions of varying amounts on varying schedules. After a modest initial deposit, the owner can contribute more when cash is available or skip a payment entirely without penalty. This suits freelancers, commission-based salespeople, small business owners, and anyone whose cash flow fluctuates. The flexibility comes at no cost in terms of the contract itself — the annuity remains intact even during periods of no contributions.