What Is An Annuity? An annuity is a contract purchased from an insurance company with a large lump sum in return for regular payments, commonly used as an income source in retirement. An annuity earns interest with either fixed or variable rates, and the buyer specifies the terms of the annuity when they purchase the contract. For instance, the buyer might specify the number of payments or guarantee payments to the surviving spouse. Some annuities can provide guaranteed payments for life, depending on the terms of the contract

Key Takeways

• Although annuities are often purchased from insurance providers, they are contracts of ensured payment, not insurance policies.
• An annuity pays out a steady income stream in exchange for a large lump-sum payment.
• Buyers can choose from fixed, variable, and indexed annuities based on their risk tolerance and financial goals
• Borrowers pay regular tax rates on the annuity instead of capital gains rates, which usually are lower.

Featured Annuities