What is Annuity?
Annuity is a type of insurance policy which guarantees fixed payments at regular intervals (usually monthly), for as long as the policyholder lives or for a fixed period of time. It is usually purchased to provide income during retirement. The premium is usually payable as a lump sum but there can also be regular premium payments for an agreed time period.
INVESTOPEDIA EXPLAINS ‘ANNUITY’
Annuities can be structured according to a wide array of details and factors, such as the duration of time that payments from the annuity can be guaranteed to continue. Annuities can be created so that, upon annuitization, payments will continue so long as either the annuitant or their spouse is alive. Alternatively, annuities can be structured to pay out funds for a fixed amount of time, such as 20 years, regardless of how long the annuitant lives.
Annuities can be structured to provide fixed periodic payments to the annuitant or variable payments. The intent of variable annuities is to allow the annuitant to receive greater payments if investments of the annuity fund do well and smaller payments if its investments do poorly. This provides for a less stable cash flow than a fixed annuity, but allows the annuitant to reap the benefits of strong returns from their fund’s investments.
The different ways in which annuities can be structured provide individuals seeking annuities the flexibility to construct an annuity contract that will best meet their needs.
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