Glossary
Annuity
An annuity is a contract with an insurance company in which money paid in — as a lump sum or over time — is later returned as income, often guaranteed for life.
Annuities come in many forms: immediate or deferred, fixed, indexed, or variable. The guarantee is only as strong as the insurer behind it, and contracts frequently carry surrender charges, rider fees, and commissions that are not always obvious at purchase.
Why it matters in practice
An annuity can genuinely address longevity risk — the possibility of outliving savings — by converting assets into lifetime income. But because many annuities pay significant commissions to the person selling them, the same product can be recommended for reasons that have little to do with the buyer's needs. Reading the fee table and asking how the seller is compensated are reasonable first steps before signing.
Related terms: Longevity Risk · Pension · Suitability · Fee-Only · Lump Sum