The period of deferral of a deferred annuity is the time between the present (start date) and when the first annuity payment begins. Sometimes, the deferral period doesn't match the payment period. For example, payments might be made monthly, but the deferral could be 6 months.

To calculate the period of deferral, you count the number of payment periods within the deferral time frame that are skipped.

Key Idea

If payments are made regularly (e.g., monthly), and the deferral period is different (e.g., half a year), then you convert the deferral time into payment periods.

Example

You are expecting monthly payments of $100 starting half a year from now.

Question: How long is the period of deferral?

Step 1: Identify the Deferral Period and Payment Period

• Deferral period = 6 months,
• Payment frequency = monthly.

Step 2: Create a time diagram

Step 3: Count the number of skipped payment periods

Before the first payment at the end of month 6, there are 5 payments periods skipped. So 5 months is the period of deferral.

Why Is This Important?

When calculating the present value or future value of a deferred annuity:

1. The deferral period affects the timing of payments.
2. You must account for the delay (in terms of payment periods) before applying annuity formulas.