Business Glossary

a contract sold by insurance companies that is bought by means of a single lump sum payment usually providing a monthly income payment for the annuitant 's life. The amount of the monthly income payment varies according to the performance of the underlying portfolio of investments. A stipulated rate of return ( Assumed Interest Rate/Assumed Investment Return (AIR) ) is assumed when the insurer calculates the initial income payment to the annuitant. If the underlying portfolio produces a net return greater than or less than the stipulated rate of return, the income payments will rise or decline accordingly.