Annuity Due vs. Ordinary Annuity: Key Differences

If you are thinking about selling your annuity payments and wondering what affects the offer you receive, the timing of your payments is one factor that matters. An annuity due pays at the beginning of each period. An ordinary annuity pays at the end. This single timing difference makes an annuity due worth more in present value terms, typically 5% to 8% more at standard discount rates, because each payment arrives one period earlier.

What Is an Ordinary Annuity?

An ordinary annuity is a series of equal payments made at the end of each period, such as monthly mortgage payments, car loan payments, and most structured settlements.

It is the most common type in financial products. The FINRA investor guide to annuities provides a helpful overview of how these products work. Common examples include:

• Mortgage payments: Due at the end of each month
• Car loan payments: Payment due at end of period
• Corporate bonds: Coupon payments at end of each 6-month period
• Structured settlement annuity payments: Most are ordinary annuities
• Lottery annuity payments: Annual payments at end of each year (after the first immediate payment)

What Is an Annuity Due?

An annuity due is a series of equal payments made at the beginning of each period, such as rent payments, insurance premiums, and certain lease agreements.

The key characteristic is that you receive each payment before the period starts, not after it ends. Common examples:

• Rent: Due at the start of the month, before you occupy the space for that month
• Insurance premiums: Due at the start of the coverage period, before coverage begins
• Lease payments: Often structured as annuity due, with payments at lease-period start
• Some pension plans: Certain defined benefit pensions pay at the beginning of each month rather than the end

Annuity due structures are less common than ordinary annuities in the structured settlement and insurance annuity markets. We see nearly every structured settlement and commercial annuity use the ordinary annuity structure. That said, understanding the distinction matters because it directly affects the present value of your payment stream and the offer you would receive from a buyer.

Which Is Worth More: Annuity Due or Ordinary Annuity?

An annuity due is always worth more because each payment arrives one period earlier, making it approximately 5% to 8% more valuable at standard discount rates.

The reason is the time value of money: a dollar today is worth more than a dollar in the future. Each annuity due payment arrives one period earlier, meaning each payment has one more period to earn returns or be put to use.

Scenario	$1,000 annual payments, 10 years, 6% discount rate
Ordinary annuity (payments at END of each year)	Present value = $7,360
Annuity due (payments at BEGINNING of each year)	Present value = $7,802
Difference	$442 (approximately 6% higher for annuity due)

A Larger Real-World Comparison

The $442 difference on a $1,000 annual payment is easy to see, but the gap grows with larger, more frequent payments. Consider $1,000 per month for 10 years at a 6% annual discount rate (0.5% monthly). The ordinary annuity present value comes to approximately $90,073. The annuity due present value, where each payment arrives at the start of the month instead of the end, comes to approximately $95,478. The difference is $5,405.

That $5,405 gap exists purely because of timing. The payments are the same size, the same frequency, and the same duration. The only change is that each payment arrives 30 days earlier. Over 120 payments, those 30-day advances compound into real money.

Payment Type	Monthly Payment	Duration	Discount Rate	Present Value
Ordinary annuity	$1,000/month	10 years (120 payments)	6% annual	$90,073
Annuity due	$1,000/month	10 years (120 payments)	6% annual	$95,478
Difference				$5,405

This is the same math that drives what a buyer offers when you sell your annuity payments. Closer payments are worth more because they are discounted less. You can run your own scenarios using our structured settlement calculator to see how timing and discount rates interact.

The Present Value Formulas

The mathematical relationship between these two annuity types is straightforward. The present value of an ordinary annuity is calculated as:

PV (ordinary) = PMT x [(1 - (1 + r)^(-n)) / r]

The present value of an annuity due simply multiplies this result by (1 + r):

PV (annuity due) = PMT x [(1 - (1 + r)^(-n)) / r] x (1 + r)

Where PMT is the payment amount, r is the discount rate per period, and n is the number of payments. The (1 + r) multiplier reflects the fact that each annuity due payment is received one period earlier, making it worth one period's worth of interest more.

For a practical example: $1,500 monthly payments for 15 years at a 9% annual discount rate (0.75% monthly) would produce a present value of approximately $147,500 as an ordinary annuity and $148,600 as an annuity due, a difference of about $1,100. You can run your own numbers using our annuity payout calculator.

Which Type of Annuity Do You Have?

Most structured settlement, commercial annuity, and lottery annuity payments are ordinary annuities, with payments arriving at the end of each period.

If you receive structured settlement payments, commercial insurance annuity payments, or lottery annuity payments, you almost certainly have an ordinary annuity. Payments from these sources are made at the end of each period (monthly, quarterly, or annually).

The one common exception: the initial payment from a lottery jackpot is typically made immediately at the time of the claim, while subsequent payments follow an ordinary annuity schedule (annually at year-end). The initial payment functions as an annuity due payment, while the remaining 29 payments are ordinary annuity payments.

Your annuity contract or settlement agreement will specify the exact payment dates. When you contact CSF for a quote, we review the contract directly and factor in the precise timing of each payment. Call us at (800) 317-3769 and we can walk you through what your specific payment schedule is worth.

How Payment Timing Affects the Selling Price

When CSF evaluates your annuity payment stream for a purchase offer, the exact timing of each payment is factored into the present value calculation. Whether your payments are ordinary annuity (end-of-period) or annuity due (beginning-of-period) affects the present value, and therefore the offer you receive.

Here is why this matters in practice. Say you receive $1,500 per month for 15 years. If those payments arrive at the beginning of each month (annuity due), the present value is higher than if they arrive at the end. The difference is roughly one month's worth of discount on every single payment. Over 180 payments, that adds up. We see this play out every time we review an annuity contract. The payment schedule page of your contract specifies the exact dates, and those dates drive the math behind your offer.

The broader principle works the same way for timing your sale. Selling payments sooner rather than later typically results in a higher percentage of face value, because closer payments are discounted less than distant ones. A payment arriving next month is worth nearly its full face value. A payment arriving in 15 years is worth considerably less today.

You can also sell a portion of your payments rather than the entire stream. For example, if you receive $2,000 monthly for 20 years, you could sell only the next 5 years of payments and keep the remaining 15 years. CSF structures partial sales to match your specific cash needs while preserving your long-term income. The amount we quote is the amount you receive. Not a penny less.

If you are curious what your specific payment schedule is worth, call us at (800) 317-3769. We review your contract directly and walk you through exactly how the timing of your payments affects your lump sum offer. For more on the selling process, see our guides on selling annuity payments and cashing out an annuity.

Frequently Asked Questions: Annuity Due vs. Ordinary Annuity

What is the difference between an annuity due and an ordinary annuity?

The difference is timing: an ordinary annuity makes payments at the END of each period, while an annuity due makes payments at the BEGINNING. A mortgage payment due at end of month is an ordinary annuity. Rent due at the start of the month is an annuity due. This timing difference means an annuity due is worth more in present value terms.

Which is worth more: annuity due or ordinary annuity?

An annuity due is always worth more than an equivalent ordinary annuity. The present value of an annuity due equals the present value of the equivalent ordinary annuity multiplied by (1 + r), where r is the discount rate. At 6%, an annuity due is worth approximately 6% more.

What is an example of an ordinary annuity?

Common examples: monthly mortgage payments, car loan payments, corporate bond coupon payments, structured settlement annuity payments, and lottery annuity payments after the initial payment. Any series of equal payments made at the END of each period is an ordinary annuity.

What is an example of an annuity due?

Common examples: monthly rent payments, insurance premium payments, and lease payments at the beginning of each period. Any series of equal payments made at the BEGINNING of each period is an annuity due.

Does the type of annuity affect how much I receive if I sell my payments?

Yes, the timing of payments affects their present value, which affects what a buyer offers. When CSF calculates an offer on your payment stream, the exact schedule of each payment is factored in.

Can I sell either type of annuity to CSF?

Yes, CSF buys payment streams from both ordinary and annuity due structures, including structured settlements, commercial annuities, and lottery payments. Contact CSF with your payment schedule for a free, no-obligation quote.