Annuity

The term annuity (from Latin annus, a year), in current use in the insurance industry, refers to two very different types of legal contracts with very different purposes. Traditionally, for at least four hundred years, the term annuity referred to what is more correctly called today an immediate annuity. This is an insurance policy which makes a series of either level or fluctuating periodical payments, made annually, or at more frequent intervals, either for a fixed term of years, or during the continuance of a given life, or a combination of lives. The overarching characteristic of the immediate annuity is that it is a vehicle for distributing savings. A common use for an immediate annuity might be to provide a pension income to a person who is about to retire.

Actuarial Considerations

A collection of algebraic shortcuts known as annuity functions are used to model annuities, as well as a variety of other financial arrangements.

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