An annuity is method by which a person can receive a regular sum in return for payment to an insurance company for a sum of money. It is not a life assurance product, though life assurance companies deal with it, and is based on actuarial principles. For example, if a person with a large sum of money wants to provide an income for oneself when they retire, or at any other time, they can approach a life assurance company and purchase an annuity by depositing the lump sum with the insurer.
he annuity income can be arranged to start immediately (that is, immediate annuity) or may start at a future date (that is, deferred annuity).
Forms or Kind of Annuities
- Annuity Certain
It can provide an annuity for the life of the person (the annuitant) or may be payable irrespective of death for a certain period
- Guaranteed annuity
This provides payment for a specified period or until the annuitant dies.
- Reversionary annuity
Provides for payment to annuitant, that is, wife, on death of another named person, that is, husband.
- Joint and last survivor annuity
This is an annuity which is payable while two people e.g., husband and wife, are alive and on death of one, will continue at the same or lesser rate until the survivor dies.