Business Glossary

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.

one whose periodic payments are dependent on some undetermined or uncertain outcome such as the value of a securities portfolio. Acontract between an investor and insurance company may take this form and subsequently the periodic payments would change as a function of the changes in applicable securities prices or rates of return. A variable annuity may also consist of payments that vary depending on changes in money market interest rates.

annuity that guarantees that a specific sum of money will be paid in the future, usually as monthly income, to an annuitant. For example, a $1000-a-month income benefit will be paid as long as the annuitant lives; the dollar amount will not fluctuate regardless of adverse changes in the insurance company's mortality experience, investment return, and expenses.