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What is annuity?

Annuity is an insurance agreement that pays an annual annuity over a period of the insured’s life in exchange for a lump sum premium upon signing the contract.
What is annuity?

Whereas in traditional life insurance the payment is made in a lump sum when the insured person dies, annuities, on the contrary, guarantee the payment of periodic income amounts as long as the insured person is alive. In practice, annuity can be paid not only annually but also quarterly or monthly, the amount should be equal to the amount accrued for the year though.

Usually, the insurance coverage sums accumulated under mixed life insurance or survival insurance are used to pay the lump sum premium. Sometimes it is allowed to pay for annuity in installments.

Annuities can be pre-numerando (paid in advance) and post-numerando (paid late). In the first case, the payment is made on the first day of the period, for which the annuity is assigned, i.e. at the beginning of the year, quarter, month. In the second case, the payout occurs at the end of the payout period. Most often, annuities are bought upon retirement or to pay for children’s education (in favor of a third party). Mortality tables are used to determine insurance rates for annuities.

Simple life annuity is an annuity with a fixed sum of regular payments throughout the life of the policyholder.

Life annuity with guaranteed benefit period is an annuity with fixed payments during the guaranteed period, regardless of whether the policyholder is alive or dead. If the policyholder survives the guaranteed period, the payments continue for life.

Fixed-term annuity with a guaranteed payment period is an annuity with a fixed payments for a guaranteed period, regardless of whether the policyholder is alive or died. If the policyholder survives the guaranteed period, the payments are made until the end of the annuity period.

Life annuity with redemption sum is an annuity with payments throughout the policyholder’s life and an additional payment at the time of death equal to the difference between the original premium and simple amount of payments made before the policyholder’s death, if this difference is positive (return on investment for the policy duration is not taken into account when calculating the additional payment amount).

Joint life annuity is an annuity with payments to the policyholder’s spouse in the event the policyholder dies before the spouse. The benefits paid to the spouse after the policyholder’s death may be equal to or less than the benefits received by the primary policyholder.

Lifetime inflation-indexed annuity

Variable annuity is an annuity in which the amount of payments depends on the actual return on the investment portfolio.

Source: https://www.chase.com/personal/investments/learning-and-insights/article/what-is-an-annuity

Photos are from open sources.

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