What is a '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.

BREAKING DOWN '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. Years Certain Annuity

    An insurance product that pays the holder a monthly income for ...
  2. Guaranteed Minimum Income Benefit ...

    A type of option that annuitants can purchase for their retirement ...
  3. Annuitization Phase

    The period when the annuitant starts to receive payments from ...
  4. Annuitization Method

    A type of annuity distribution structure that gives the annuitant ...
  5. Annuity Certain

    A financial instrument that provides a stream of payments, for ...
  6. Income Annuity

    Annuities designed to start paying income as soon as the policy ...
Related Articles
  1. Retirement

    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. Investing

    Is Annuitization Your Best Strategy?

    Annuitization offers annuity owners an income stream they can't outlive, but there are pitfalls.
  3. Retirement

    What Is the Best Age to Get an Annuity?

    Optimizing the benefits of an annuity means guaranteeing a stream of income you can't outlive.
  4. Financial Advisor

    Annuities and Baby Boomers: The Pros and Cons

    The pros and cons of annuities that Baby Boomers seeking retirement income need to know.
  5. Retirement

    Immediate Annuities: Guaranteed Payout At A Price?

    This vehicle can have very low, or even negative, rates. Find out when it pays to invest.
  6. Retirement

    Managing Annuity Distributions in Retirement

    Strategies to help manage taxable deferred annuity distribution in retirement.
  7. Retirement

    Retirement Tips: Choose the Best Annuity Provider

    It pays to get the best advice if you are thinking of putting your money into one of these complicated investments.
  8. Investing

    Just Say No to Variable Annuities

    Sellers of variable annuities make them sound great to earn their commission, but they are not.
  9. Retirement

    How a Fixed Annuity Works After Retirement

    These popular investments can provide a steady stream of income during your retirement years. Here are the details.
  10. Retirement

    Saving Money With A Private Annuity Trust

    Learn about a strategy that could help you reduce taxes, diversify your portfolio and generate income.
Hot Definitions
  1. Trustee

    A person or firm that holds or administers property or assets for the benefit of a third party. A trustee may be appointed ...
  2. Gross Domestic Product - GDP

    GDP is the monetary value of all the finished goods and services produced within a country's borders in a specific time period, ...
  3. Debt/Equity Ratio

    The D/E ratio indicates how much debt a company is using to finance its assets relative to the value of shareholders’ equity.
  4. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange.
  5. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  6. Return On Equity - ROE

    The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability ...
Trading Center