What is Annuity?
An annuity is a contract typically offered by insurance companies, designed to provide a steady income stream over a period, often for life or a specified number of years. People usually purchase annuities to ensure financial security during retirement, converting a lump-sum payment or a series of payments into a reliable income source.
Annuities come in various forms, such as fixed annuities, which guarantee a specific payment amount, and variable annuities, which fluctuate based on investment performance. Additionally, there are immediate annuities that start payments shortly after the initial investment and deferred annuities that begin payments at a later date, allowing the invested funds to grow tax-deferred.
In the context of life insurance, annuities can be an attractive option for policyholders nearing retirement who want to convert their savings into a predictable income. Unlike some life insurance products, annuities do not provide a death benefit but focus on lifetime income, offering peace of mind by safeguarding against outliving one’s resources.
The choice of annuity type depends on individual financial goals, risk tolerance, and retirement plans. It’s essential for individuals considering an annuity to understand the terms, fees, and benefits, as these products can significantly impact long-term financial stability.