is an Annuity?
Annuities are contractually-executed,
relatively low-risk investment products; the insured (usually,
an individual) pays a life insurance company a lump-sum
premium at the start of the contract. That money is to be paid
back to the insured in fixed, incremental amounts, over some
future time period (predetermined by the insured). The insurer
invests the premium; the resulting profit/return
on investment fund the payments received by the
insured, and, compensate the insurer.
Conventional annuity contracts provide a predictable,
guaranteed stream of future income (e.g., for retirement)
until the death(s) of the beneficiaries) named in the
contract, or, until a future termination date – whichever
occurs first. These
financial instruments have been used to accumulate funds and
provide significant and sudden increases in personal income
(via future, lump-sum withdrawals), all while legally avoiding
the taxes (e.g., income-, capital gains-, estate-) that would
otherwise be assessed on them.