What Is Annuity? Definition | Epic Life Glossary

Why it matters

People use annuities to save for retirement or to turn savings into steady income. The main types are fixed, indexed, and variable. Fixed and indexed annuities are insurance products. Variable annuities are securities with investment risk. Annuities often include surrender charges for early withdrawals and may carry fees. Guarantees depend on the claims-paying ability of the insurer. Features and rules vary by carrier and state, so compare contracts and read the disclosure carefully.

Source: investor.gov

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Related terms

Fixed Annuity: A fixed annuity is an insurance contract that earns a stated interest rate set by the insurer. The rate is guaranteed for a period, and the insurer promises a minimum interest rate for the life of the contract.
Fixed Indexed Annuity (FIA): A fixed indexed annuity (FIA) is an annuity that credits interest based in part on the performance of a market index, with a minimum guarantee. The owner does not invest directly in the index.
Deferred Annuity: A deferred annuity is an annuity contract that delays payments until a future date chosen by the owner. Until then, the money can grow during an accumulation phase, tax deferred.
Surrender Charge: A surrender charge is a fee an insurer charges if you withdraw more than the allowed amount from an annuity, or cancel the contract, during the surrender period. It is usually a percentage that declines each year.
Annuitization: Annuitization is the process of converting an annuity's value into a stream of regular income payments. Payments may last for life or for a set number of years, depending on the option chosen.

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