An annuity is a contract which is sold by an insurance company to an investor promising to pay them a monthly quarterly or annual income from the date of maturity of the investment. In most cases this date is usually set to coincide with the retirement of the investor. Let us now look at further definitions of the term annuity. Defining annuitiesmay seem like a difficult subject. However it is exactly the opposite. When people look for an annuity definition, they often end up confusing themselves about the subject. The confusion lies in the fact that annuities are sold by insurance companies but are nowhere close to insurance policies that the same companies sell. Annuities are a diverse product with characteristics that are also different. Insurance policies are sold with the intention of providing monetary relief to a beneficiary after the death of the buyer.
The annuity definition normally differs in line with the type of investment that has been made. For people investing money into an immediate annuity in a lump sum the definition would be one where they get returns on their investments instantly. These people will not have to wait until they retire to benefit from the annuity. They might be elated at the prospect of getting quick returns on their investments. However it is also a fact that these people invested a large sum of money in a lump sum which is giving them the returns.
Annuity definition will be different for people that are pondering about their time in retirement. They will want to have a regular source of income in those days and will be willing to make smaller contributions every month to build up a fund large enough to let them live comfortably. Companies selling annuities set up payment facilities for these people enabling them to make monthly contributions towards their retirement fund. Interest will be added to the funds at a compounded rate by the companies leaving investors with a excellent source of income.
When talking about annuity definition, mention must be made towards the type of investment chosen by the investor. People choosing fixed rate annuities will get their returns based on fixed interest rates. These annuities face lesser risks than another type of annuities, which are known as variable annuities. Funds invested in these annuities are mostly invested in government securities or high value bonds from major companies. People investing in variable annuities stand a far greater chance of getting higher returns than fixed annuities. However these returns are based on market performance of the annuities and could range from time to time. They will not loose the money invested in the funds but will face a risk of lower returns, should the market perform badly.