How An Annuity Works

An annuity is a financial contract written by a life insurance company to provide continuing income, typically for retirement. Payments, which are generally made on a monthly basis, are usually arranged to continue for as long as you live or a stated period of time. Payments may begin at once or at some future date.

The annuity contract is often described as being the opposite of life insurance. It pays while you live; life insurance pays when you die. Actually, the two can complement each other. Instead of lump-sum benefit payments, many life insurance beneficiaries choose to use their policy's proceeds to purchase an annuity.