Annuity Definition - The Annuities Definition Resource
Annuity Definition = The technical definition of annuity contracts explains that an annuity is a periodic payment that will begin at a specified or contingent date and continue throughout a fixed period or for the duration of a designated life or lives.
Annuities come in a wide assortment of forms, although the underlying principle remains consistent throughout the entire spectrum of products. To be an annuity, the product must break up a lump sum amount into a series of payments.
All annuities come in either immediate or deferred form. The distinction is the start date of payments out of the account. The immediate annuity begins payments soon after contract creation, while the deferred annuity provides payments at a later date in time. For more information on immediate versus deferred, see our article on the immediate fixed annuity and fixed deferred annuity.
The three major categories of annuities are: fixed annuity, variable annuity, and indexed annuity.
Fixed Annuity Definition - The conventional fixed annuity provides periodic fixed dollar payments over a specified period of time. This type of annuity is also called a fixed income annuity.
Variable Annuity Definition - As opposed to a fixed contract, the variable annuity provides variable dollar payments for a specified period of time. Variable annuities are typically tied to some form of market participation, and can be riskier to the investor.
Indexed Annuity Definition - A hybrid of the two previous annuity types is the fixed index annuity. This type of annuity is fixed in every regard except that the annuity participates in market index growth during market up years.
As annuities are also a form of insurance contract, most annuity products are offered through the same companies that offer life insurance products. The major insurance providers often also offer their own annuity product line as well. The variation of products makes annuity comparisons critical to the investor. You should always get a number of different quotes before committing to any one contract type. Annuity advice should always come from someone that experience and licensed. If you aren't able to have annuities explained to you in such a way as to understand, the advisor likely doesn't understand the product themselves.