• Fixed number of identical cash flows that start one period from today. Typically, annuity products are used to provide income in retirement.
• Is an insurance product which comes in two basic forms: fixed and variable. The fixed version can make a lump sum or periodic lifetime payments to the annuitant. The variable version has a separate account attached to the annuity contract. This type of contract is considered a security because it is dependent on equities and its total value is subject to fluctuate due to market risk. There are many annuity varieties. Some are: Annuity Certain, Annuity Due, Deferred Annuity, Fixed Annuity, Life Annuity, Ordinary Annuity, Perpetuity, and Variable Annuity. Also, see Interest Impact on Present Value of Ordinary Annuity of 1 Per Period.
• A regular periodic payment made by an insurance company to a policyholder for a specified period of time.
• A finite stream of equal and periodic (regular) cash flows. These cash flows can be inflows of returns earned on investments or outflows of funds invested to earn future returns.
• (1) A series of periodic payments. (2) A contract under which an insurance company promises to make a series of regular payments to a named individual for life.

Annuity certain
• An annuity that is payable for a stated period of time, regardless of whether an individual lives or dies.

Annuity due
• An annuity for which the payments occur at the beginning of each period.
• An annuity with n payments, wherein the first payment is made at time t = 0 and the lastpayment is made at time t = n - 1.

Annuity factor
• Present value of $1 paid for each of t periods.

Annuity form or option
• A choice of payment methods available to an individual getting a pension or annuity.

Annuity in arrears
• An annuity with a first payment on full period hence, rather than immediately.

Annuity rate
• The single-sum price that an insurance company or pension plan charges for an annuity contract or option of a standard amount such as $1 per month. Annuity rates usually vary by age, and by sex if the annuity is outside a private pension plan, and are in addition to fixed expense charges. Also known as annuity purchase rate. See unisex annuity rate.

Cash refund annuity
• A type of refund annuity under which the refund is paid in a lump sum. See refund annuity and installment refund annuity.

Deferred annuity
• An annuity under which benefit payments do not begin when the annuity is purchased. In a typical deferred annuity, the individual accumulates money on a tax-deferred basis until retirement, then converts the accumulated value into income payments or withdraws it in a lump sum.
• An annuity contract that delays payments of income, installments, or a lump sum until the investor elects to receive them.

Deferred nominal life annuity
• A monthly fixed-dollar payment beginning at retirement age. It is nominal because the payment is fixed in dollar amount at any particular time, up to and including retirement.

Equivalent annual annuity
• The equivalent amount per year for some number of years that has a present value equal to a given amount.

Fixed annuity
• An annuity under which the insurer guarantees to pay at least a specified monthly benefit amount for each dollar applied to purchase the annuity. Also called fixed benefit annuity.
• An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both Earnings and Principal. See also: Variable Annuity; Fixed Dollar Annuity; Guaranteed Dollar Annuity.

Future value interest factor for an annuity
• The multiplier used to calculate the future value of an ordinary annuity at a specified interest rate over a given period of time.

Immediate annuity
• An annuity under which income payments begin when the annuity is purchased.

Installment refund annuity
• A type of refund annuity under which the refund is payable in a series of periodic payments. See refund annuity and cash refund annuity.

Interest impact on present value of ordinary annuity of 1 per period
• Is calculated by the following formula:

Amount = 1 -[1/(1+i)t] i where i is the interest rate and t is expressed decimally (.05 for 5 percent). Also, t is the time and .5 refers to 1/2 of a year, 2 equals 2 years and 7.75 equals 7 3/4 years.

Joint and survivor annuity
• An annuity that provides a series of payments to two or more individuals as long as one of them survives.

Life annuity
• A series of payments that are made at regular intervals as long as a named individual, the annuitant, is then alive. Also known as a straight life annuity.

Life annuity with period certain
• A life annuity which promises that if the annuitant dies before the end of a designated period (usually 5, 10, or 20 years), the insurer will continue payments until the end of the designated period. Also called a life income with period certain annuity.

Life income with refund annuity
• An annuity that pays benefits throughout the annuitant s lifetime and guarantees that total benefit payments will at least equal the purchase price of the annuity.

Normal annuity form
• The manner in which retirement benefits are paid out.

Ordinary annuity
• An annuity for which the cash flow occurs at the end of each period. The first cash flow is assumed to occur one period after time zero.

Present value interest factor for an annuity
• The multiplier used to calculate the present value of an annuity at a specified discount rate over a given period of time.

Qualified joint and survivor annuity
• "A form of annuity which provides for pension benefits from a qualified plan to continue to the spouse after a retired participant s death. The spouse s benefits are payable for life unless the participant (with consent of the spouse) has elected to forego it, and must be between 50 and 100 percent of the original benefits.

Rams reverse annuity mortgages
• Mortgages in which the bank makes a loan for an amount equal to a percentage of the appraisal value of the home. The loan is then paid to the homeowner in the form of an annuity.

Refund annuity
• A life annuity contract that guarantees total benefit payments will at least equal the purchase price of the annuity. See also cash refund annuity and installment refund annuity.

Single premium deferred annuity
• An insurance policy bought by the sponsor of a pension plan for a single premium. In return, the insurance company agrees to make lifelong payments to the employee (the policyholder) when that employee retires.

Unisex annuity rate
• An annuity rate that is the same for men and women, as required by federal law governing benefits under public and private employee benefit plans. On the average, women tend to live longer than men and thus pay more than men for an annuity issued outside such a plan.

Variable annuity
• An annuity under which monthly payments vary depending upon the value of the underlying investments, usually common stocks.
• An insurance contract in which the insurance company guarantees a minimum total payment to the annuitant at the end of the accumulation stage. The performance of a separate account, generally invested in equity securities, determines the amount of this total payment. See also: Fixed Annuity.

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