Annuities Explained

Kinds of Annuities

Annuity Certain: An annuity that pays a specified amount for a definite and specified period of time, such as 5 or 10 years, with remaining payments going to a designated beneficiary if the annuitant dies before the end of the specified period.

Annuity Certain, Life: An annuity payable for a specified minimum number of periods or, if longer, for as long as the annuitant lives. A combination of an annuity certain and a life annuity.

Deferred Annuity: A series of payments that are not begun until the lapse of a specified period of time or until the annuitant reaches a specific age.

Equity Indexed Annuity: An equity-indexed annuity is a fixed annuity, either immediate or deferred, that earns interest or provides benefits that are linked to an external equity reference or an equity index. The value of the index might be tied to a stock or other equity index. One of the most commonly used indices is Standard & Poor's 500 Composite Stock Price Index (the S&P 500) 1, which is an equity index. The value of any index varies from day to day and is not predictable.

When you buy an equity-indexed annuity you own an insurance contract. You are not buying shares of any stock or index.

Fixed Annuity: An annuity that provides fixed payments during the annuity period. (For contrast, see: variable annuity.)

Flexible Premium Annuity: An annuity which allows the owner of the contract to vary premium payments (within limits) from year to year.

Immediate Annuity: An annuity contract that pays the annuity at the end of each period of payment. The interval may be monthly, quarterly, semiannually or annually.

Joint Life Annuity: A life annuity payable to two or more annuitants which continues payments until one of the two annuitants dies.

Life Annuity: An annuity contract that pays only until the annuitant dies. Payments cease at that time even if the amount paid by the insurer does not equal the total premiums paid by the annuity owner.

Variable Annuity: An annuity that invests the contractholder's funds in security-type investments and that does not guarantee the level of payments. Instead, payments may fluctuate up and down in relation to the earnings and market value of the assets in a separate account. Thus, the investment risk is assumed by the contractholder.