Life Annuity

AAA

DEFINITION of 'Life Annuity'

An insurance product that features a predetermined periodic payout amount until the death of the annuitant. These products are most frequently used to help retirees budget their money after retirement. Typically, the annuitant pays into the annuity on a periodic basis when he or she is still working. However, annuitants may also buy the annuity product in one large purchase. When the annuitant retires, the annuity makes periodic (usually monthly) payouts to the annuitant, providing a reliable source of income. When a triggering event (such as death) occurs, the periodic payments from the annuity usually cease.

INVESTOPEDIA EXPLAINS 'Life Annuity'

Because of the complex nature of annuity products and their implications for the annuitant's standard of living, people are well advised to consult a reputable professional before purchasing any annuity product.

Due to the tax-preferred nature of annuities, very wealthy investors or above-average income earners often use these life insurance products to transfer large sums of money or to mitigate the effects of taxes on their annual income.

RELATED TERMS
  1. Certain And Continuous

    A type of annuity that guarantees a number of payments, even ...
  2. Fixed Annuity

    An insurance contract in which the insurance company makes fixed ...
  3. Deferred Annuity

    A type of annuity contract that delays payments of income, installments ...
  4. Life Insurance

    A protection against the loss of income that would result if ...
  5. Triggering Event

    1. A tangible or intangible barrier or occurrence that, once ...
  6. Variable Annuity

    An insurance contract in which, at the end of the accumulation ...
RELATED FAQS
  1. What are the main differences between a Registered Retirement Income Fund (RRIF) ...

    A Registered Retirement Income Fund (RRIF) is a tax-advantaged plan that allows investors the benefit of tax-deferred growth ... Read Full Answer >>
  2. Is Social Security Income a perpetuity?

    Because Social Security income does not continue indefinitely, it cannot be classified as a perpetuity. What Is a Perpetuity? A ... Read Full Answer >>
  3. What kinds of costs are included in Free on Board (FOB) shipping?

    Free on board (FOB) shipping is a trade term published by the International Chamber of Commerce or ICC, that indicates which ... Read Full Answer >>
  4. What do insurance companies qualify as hazardous activity?

    An insurance company defines a hazardous activity essentially as any type of undertaking with a high level of risk of injury ... Read Full Answer >>
  5. What financial ratios are most useful for an investor to evaluate the liquidity of ...

    An insurance company, like any other nonfinancial company, needs access to liquidity in case it needs to fulfill its debt ... Read Full Answer >>
  6. How does a pension income drawdown work?

    While there are similar drawdown plans in the United States, a pension income drawdown plan most commonly refers to a specific ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Explaining Types Of Fixed Annuities

    Learn about this popular retirement tool, its pros and cons and how annuities work to create a guaranteed regular stream of retirement income.
  2. Home & Auto

    An Overview Of Annuities

    These contracts provide a guaranteed income stream. Learn how they work and their benefits.
  3. Insurance

    Life Insurance: Putting A Price On Peace Of Mind

    Would your death leave loved ones financially stranded? Find out how to ease your mind and keep them protected.
  4. Options & Futures

    Break Out Of Annuity Prison

    Annuities offer security but also lock up your cash. The secondary market could be your key.
  5. Professionals

    Pension Annuity vs. Lump Sum: Which is Best?

    Which pension distribution option best serves your client, a pension annuity or a lump-sum payout?
  6. Insurance

    Do You Need Kidnap & Ransom Insurance?

    Americans working abroad – and high-profile individuals traveling frequently in kidnapping hot spots – should consider this type of protection.
  7. Insurance

    A Guide To Kidnap & Ransom Insurance

    Every year, thousands of people are kidnapped for ransom all over the world. This insurance offers protection – and peace of mind.
  8. Fundamental Analysis

    Calculating the Present Value of an Annuity

    The present value of an annuity is the current, lump sum value of periodic future payments as calculated using a specific rate.
  9. Insurance

    Should I Insure My Wedding Ring?

    It depends, in part, on the ring's value and your current insurance coverage. Here's a guide to making a decision that's right for you.
  10. Insurance

    How To Insure Your Wedding Ring

    Read on for everything you need to know to make sure this precious possession is covered against theft, damage, loss and more.

You May Also Like

Hot Definitions
  1. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  2. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  3. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  4. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  5. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  6. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!