Annuities are flexible insurance contracts designed to provide income and help achieve long-term savings goals. Annuities are very widely accepted. Annuities are very low risk and extremely conservative all the while providing an income for the annuitant. Just as certificates of deposits are offered by a bank, an annuity is a long-term product offered by an insurance company.
After making a single lump-sum premium payment, or a series of periodic payments, individuals can then receive regular annuity payments from the insurance company. An annuity provides you with a fixed amount of money for a specific number of years, or they can last a lifetime. You cannot out live an annuity. It is also possible to have a period certain (10 years) and a lifetime guarantee. These types of annuities provide an income to the annuitant for a certain period of time (10, 15 or 20 years) or if the annuitant dies prior to receiving their guaranteed payout the beneficiary will receive the balance of the payments. The annuitant will keep receiving payments regardless of the number of years until their death.
Annuities can start immediately after the first premium payment is made or be tax deferred to start in the future. Payments to the annuity owner can also be tailored to begin after the contract has been established for a number of years. There are options in an annuity where money can be withdrawn without incurring any penalty.
Over time, insurance companies have modified and enhanced annuities however; their basic premise has always remained the same, conservative, low risk and income producing. Since an insurance company issues annuities, congress allows them to grow tax-deferred under current tax laws.