What is an annuity and how does it work?

Often marketed as a financial product, an annuity is basically a contract between you and an insurance company designed to provide an income that is guaranteed for the rest of your life. You make a payment (or payments) to an insurance company and, in return, they promise to grow that money and send you payments during retirement.

What does annuity stand for?

Insurance policies are sold with the intention of providing monetary relief to a beneficiary after the death of the buyer. An annuity is a contract, which is sold by an insurance company to an investor, promising to pay them a monthly, quarterly or annual income from the date of maturity of the investment.

What can an annuity do for You?

“Because annuities are insured, companies and/or individuals have to pay insurance fees that they would not have to pay for traditional mutual funds. The insurance does add another layer of protection for your hard-earned money, but it comes at a cost.