An annuity is an investment product with almost very low risk. In this type of investment, the individual pays the insurance firm a single sum when the contract begins. This amount is fixed and an incremental amount is paid over the years to come (decided by the individual).

The premium is invested by the annuitant and its profit is paid and the returns fund the payment which compensates the annuitant.

A conventional annuity provides a stable future income (after retirement) until the death of the beneficiaries named in the contract, or termination date which is first.

The reason for this is to secure the retirement. Its earliest recorded version was seen in 1720 in a Presbyterian church to help the widows and family of the minister’s. In 1912 the Pennsylvania Insurance Company offered annuity to the public. The annuity was used by public figures like Benjamin Franklin, Babe Ruth, and OJ Simpson.

There are various types of annuities available in the investment market. It has features of a life insurance and that of an investment product. Annuity insurance can only be issued by life insurance companies. A private annuity is a contract between donors and non-profit organizations. Insurance annuities are governed by the Internal Revenue.

Commission of Securities and Exchange regulates the Variable annuities. An annuity has two phases—the first phase is where the money is deposited by the customer in an account and the second phase is when the customer starts to receive the payments. It is in this phase the company makes payments till the annuity ends or until the customer dies.

It has a death benefit over a certain period. Deferred annuities have a deferred phase. The annuity may just have the annuity phase and is referred to as an immediate annuity.

An immediate annuity is an insurance policy which for a sum of money makes a string of payments which are of the same amount or increasing sum for a fixed number of years or until the person dies which is longer.

This type of annuities is used to distribute the savings and the tax is deferred. The most common use is to provide a pension. Payment made are a combination of principal and income. The annuity as IRA is not taxed.

Annuity with a period pays for a limited number of years. The annuitant may outlive the annuity.

Life annuity provides an annuity for life. It works as a loan where the payments made include the principal and interest/gains and are taxed as an ordinary income. The loan period is linked to the life of the annuitant. It is like longevity insurance. The life annuity is the best when the person does not know how long he has to live.

Variants of this annuity exist, these include additional expense where the payment increases, there can be a rider on the life of a spouse or family member. It is best to get an annuity that makes payments to the wife/husband after the death of the annuitant. This annuity is called a reversionary. If the person is in good health it is advantageous to seek higher pay and also a life insurance where the survivor gets a regular income.

Life annuity becomes unsympathetic if the annuitant dies before getting back the investment in the contract it gets forfeited, the damage can be reduced. The annuitant needs to pay a certain sum for a number of years. If the investor outlives a certain period and continues until his/her death. If he dies early then the beneficiary get the payments. The difference between the annuity of life and the annuity for a certain period is that the annuity for the second type is small. A good alternative is to buy a single-premium insurance which covers the premium lost yearly.

Investors having a particular illness can also invest in annuities which are called impaired-life annuity. The life expectancy is less and the annual payment is high.

The price of life annuities is according to how long the annuitant survives. Longevity insurance defers payment on the annuity until later in life. This would be bought at retirement and this annuity would only start making payment only after 20 years of retirement. If the annuitant dies then there is no payment required.

The deferred annuity was started in the 1970s. It is a method to accumulate savings and making payment in the form of an immediate annuity or total sum payment. Every annuity has a common feature that if the amount increases it will not be taxed until they are withdrawn. This is known as a deferred payment of tax.

A deferred annuity grows with interest earnings and is called a fixed deferred annuity which allows allocation. It may have deferred fixed or/and variable annuities. In this, the company owners have a minimum return, while if he/she can cancel an annuity are likely to lose money.