What Is Life Annuity, And How Does It Work?



A Life Annuity is: a financial contract in the form of an insurance product according to which a seller (issuer) — typically a financial institution such as a life insurance company — makes a series of future payments to a buyer (annuitant) in exchange for the immediate payment of a lump sum (single-payment annuity) or a series of regular payments (regular-payment annuity), prior to the onset of the annuity.

The payment stream from the issuer to the annuitant has an unknown duration based principally upon the date of death of the annuitant. At this point the contract will terminate and the remainder of the fund accumulated is forfeited unless there are other annuitants or beneficiaries in the contract.
Thus a annuity life is a form of longevity insurance, where the uncertainty of an individual's lifespan is transferred from the individual to the insurer, which reduces its own uncertainty by pooling many clients. Annuities can be purchased to provide an income during retirement, or originate from a structured settlement of a personal injury lawsuit.

An annuity is just a series or stream of payments.“Annuity” comes from the Latin for “year”. In the context of life insurance, it is a contract between you and an insurance company under which the insurance company pays you money for a stipulated period — often for life. The payments are frequently monthly. The person receiving the payments is referred to as an “annuitant.”

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