Annuity

An annuity is an investment related product designed to provide monetary payments to an annuitant at regular intervals. In many cases, an annuity is contract sold by an insurance company. An annuity is frequently used as retirement income and often cannot be withdrawn until a specified age. Tax deferral benefits are offered with an annuity, which means that annuity earnings grow tax-deferred until the time of withdrawal. The most common type of annuity is similar to a savings account. The annuitant deposits a sum of money (the principal), with an insurance company, business or an individual to be invested in a manner that will allow the principal to earn income at a certain percentage. The payments of an annuity can be at a fixed rate or a variable rate. A fixed annuity ensures a specified payment amount, while a variable annuity does not. Other types of annuities include: a straight annuity, a deferred annuity, a joint annuity and a cash refund annuity, among others. An annuity typically has a death benefit, with the accumulated earnings going to the annuitant’s heirs or other beneficiary.