An annuity is a contract with an insurance company in which the purchaser pays a specific sum of money, usually in installments. In return, the insurance company guarantees to pay the purchaser a fixed, regular income from a set date until his or her death. Some people who hold annuities may die before they have collected the money they put in, while others may collect more than they paid. The insurance company uses statistics to determine how the money balances out and how to set annuity rates. Annuities are available in several forms. Some are payable to beneficiaries if the annuity holder dies before completing payments or before the total investment is paid back. Some annuities pay interest bonuses in the first year or throughout a ten-year period. Others offer tax-deferred options. Accumulator annuities allow a person to save, invest, earn guaranteed interest rates, and accumulate money for a given period. Immediate annuities allow one to invest a lump sum of money and begin receiving guaranteed monthly payments immediately. An annuity generally guarantees a lifetime income to the investor, in return for either a lump sum or a periodic payment to the insurance company. Purchasing an annuity allows a person to have money on a regular basis. For more information, contact your insurance company or a financial planner.
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