Sunday Emmanuel

@sundayemmanuel · 18 Nov 2021

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What is annuity?

An annuity is a series of payments made at equal intervals. It also refers to an insurance contract issued and distributed by financial institutions with the intention of paying out invested funds in a fixed income stream in the future. They are financial products that offer a guaranteed income stream, usually for
retirees. The annuitant begins receiving payments after the annuitization period for a fixed period or for the rest of their lives. It can be structured into different kinds of instruments which give investors flexibility.

Phases of annuity
- The accumulation phase: this is the period of time when the annuity is being funded and before payment begins.
- The annuitization phase: this kind in once payments commence.

Types of annuity

1. Immediate payment annuity: this begins paying immediately after the annuitant deposit of a
lump sum.

2. Deferred income annuity: it does not begin paying out after the initial investment, instead, the
the client specifies an age at which they would like to begin receiving payment from the insurance
company.

Structures of annuity

1. Fixed annuities: this provides regular periodic payments to the annuitant
.
2. Variable annuities: it allows the owner to receive larger future payments if the investment of the
annuity fund do well and smaller payments if its investment do poorly, which provides for less
stable cash flow than a fixed annuity but allows the annuitants to reap the benefits of strong
returns from their fund's investment.