Annuity

What Does Annuity Mean?

An annuity is an insurance product that allows an individual to make payments over time in exchange for a steady stream of payments in the future. During the accumulation phase, the insurance company receives payments from the owner for a specified number of years. Once this phase ends, the annuity enters the annuitization phase, during which the insurance company pays the owner a series of payments.

Insuranceopedia Explains Annuity

Annuities were developed to provide individuals with a steady cash flow during retirement and to protect against the risk of outliving their assets. Social Security and defined benefit pension plans are the most common examples of lifetime guaranteed annuities.

There are four types of annuities:

1. Immediate Annuity: Begins paying out immediately after the policyholder makes an initial investment.
2. Deferred Annuity: Accumulates funds through the policyholder’s payments over a specific period, then provides regular payments when the policyholder needs the cash.
3. Fixed Annuity: Pays a set amount to the policyholder.
4. Variable Annuity: Pays benefits based on the performance of a specific investment portfolio or the overall market.