Annuity Definition
The Dictionary of Insurance Terms and Definitions
Annuities are a conservative financial vehicle which allow an individual to set aside and accumulate funds for a future need. In the broadest terms, an annuity is a product which has a deferment period and a payment period. During the deferment period, the annuity owner (the customer) makes payments into the annuity, rather like deposits into a savings account. (The deferment period may last for only a single payment, however.) During the payment period, the annuity seller makes periodic payments to the annuity owner. (Again, the payment period may last for only a single payment.)
Annuities are designed to pay out more than the owner pays in, rather like the buyer were issuing a special kind of loan to the seller, which the seller must repay with interest. Different kinds of annuity implement different plans for determining how large the buyer's return on investment shall be.
An annuity may pay out for a specified number of years or for the remainder of the annuitant's (customer's) life. In the latter case, annuities can serve as a sort of longevity insurance, a concept quite opposite life insurance.
An annuity is not a life insurance policy, but it is considered a life insurance product because it is life insurance carriers that create and sell annuities.
