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Updated on October 4, 2023

An annuity is a financial product provided by insurance companies that offers a regular and guaranteed income stream to an individual in exchange for a lump-sum payment or a series of payments, typically over a set period or for the rest of the individual’s life. Individuals can typically choose the frequency of their annuity payouts, such as monthly, quarterly, semi-annually, or annually, depending on their financial needs and preferences. Annuities are primarily used to provide a source of income during retirement, ensuring that individuals have a steady financial stream to cover living expenses and maintain their lifestyle.

What are the types of Annuity in insurance?

Immediate Annuity – Income starts soon after the initial payment, ideal for immediate retirement needs.

Deferred Annuity – Income begins at a later date, allowing for potential growth of invested funds.

Fixed Annuity – Guarantees stable income throughout the annuity contract, unaffected by market changes.

Variable Annuity – Offers potential for higher returns tied to market investments, but income can fluctuate with market performance.

Indexed Annuity – Returns are linked to a specific market index’s performance, combining growth potential with some protection against market downturns.

What are the income options of annuity?

Annuity holders can choose from various income options, including:

Lifetime Income – Annuities can provide income for the duration of the annuitant’s life, ensuring financial security in retirement.

Fixed Period or Term Certain – Some annuities offer income payments for a predetermined period, such as 10 or 20 years. If the annuitant passes away before the term ends, the remaining payments may go to beneficiaries.

Joint and Survivor Annuity – This option allows income payments to continue to a surviving spouse or beneficiary after the annuitant’s death.