annuity definition

An annuity is a financial instrument that provides future payments to the holder over an agreed period, such as 20 years, or in a lump sum. Annuities are sold and administered by insurance companies and other financial institutions.

An annuity can be purchased as a financial instrument, but an annuity can also be the payment plan chosen by the beneficiary of a life insurance policy, and as the payment structure of a retirement plan.

A life annuity will typically pay out for the life of the holder with payments determined by the size of the initial investment, the interest earned on the investment, the various fees charged by the issuer and other variables. An annuity certain contract will provide a stream of payout for a specific number of years.