series of equal periodic payments or receipts. Examples of an annuity are semiannual interest receipts from a bond investment and cash dividends from a preferred stock. There are two types of an annuity: (1) Ordinary annuity, where payments or receipts occur at the end of the period; (2) Annuity due, where payments or receipts are made at the beginning of the period.

form of contract sold by life insurance companies that guarantees a fixed or variable payment to the annuitant at some future time, usually retirement. In a fixed annuity the amount will ultimately be paid out in regular installments varying only with the payout method elected. In a variable annuity , the payout is based on a guaranteed number of units; unit values and payments depend on the value of the underlying investments. All capital in the annuity grows tax deferred . Key considerations when buying an annuity are the financial soundness of the insurance company (see best's rating ). the returns it has paid in the past, and the level of fees and commissions paid to salesmen.

contract sold by commercial insurance companies that pays a monthly (or quarterly, semiannual, or annual) income benefit for the life of a person (the annuitant ), for the lives of two or more persons, or for a specified period of time.

investment contract purchased from a life insurance company that makes guaranteed payments at some future date, usually after retirement. A fixed annuity pays a fixed-dollar income for a predetermined number of years, or for the remaining life of the annuitant. A variable annuity pays an investment return tied to the market value of securities owned (stocks, bonds, or money market securities), and is designed to preserve purchasing power. There is usually no annual limit on annuity contributions, and distributions are generally not required at age 701/2. Capital invested in annuities grows tax-free and at withdrawal is taxed at ordinary income tax rates. Financial soundness of the insurance company, past investment performance, and broker sale commissions are important considerations in buying an annuity. Unlike bank deposit accounts, annuities are not protected by deposit insurance.

contract sold by insurance companies that pays a monthly (or quarterly, semiannual, or annual) income benefit for the life of a person (the annuitant), for the lives of two or more persons, or for a specified period of time. The annuitant can never outlive the income from the annuity. While the basic purpose of life insurance is to provide an income for a beneficiary at the death of the insured, the annuity is intended to provide an income for life for the annuitant. There are variations in both the way that payments are made by a buyer during the accumulation period, and in the way payments are made to the annuitant during the liquidation period.

An annuity may be bought by means of installments, with benefits scheduled to begin at a specified age such as 65; or, it may be bought by means of a single lump sum, with benefits scheduled to begin immediately or at a later date. No physical examination is required. For variations in methods of payment, see cash refund annuity ; fixed dollar annuity ; installment refund annuity ; joint-life and survivorship annuity ; joint life annuity ; life annuity certain ; pure annuity ; variable dollar annuity .

a series of equal or nearly equal periodic payments or receipts.

Example: The receipt of $100 per year for the next 5 years constitutes a $100 five-year annuity.