Annuity Definition

What is the annuity definition?

An annuity is a life insurance company product. The general annuity definition is given below.

Apart from understanding the annuity definition, you should be aware that there are many types of annuity. Many people confuse an annuity with an investment. While many types of annuity do invest in various stocks, bonds, mutual funds and other investment vehicles, an annuity is not strictly an investment. You can think of an annuity as a half investment and half insurance, being issued by insurance companies. As with most life insurance products, an annuity can have complicated terms so anyone thinking of investing or buying an annuity should make sure that all the terms of the annuity are clear and understood.

Apart from the general annuity definition, there are also specific annuity definitions that you should be familiar with. Below are the two most common type of annuities, each given with its definition.

Fixed annuity definition

The basic definition of a fixed annuity is an annuity with a fixed general account (unlike variable annuity, see the variable annuity definition below). A fixed annuity has a general account associated with it and the insurance company guarantee to pay a fixed payout to the annuitant.

Variable annuity definition

A variable annuity is an annuity without a separate investment account (rather than a fixed account). A variable annuity is considered a security because the investor takes on the market risk. The return of the variable annuity depends on how well the investments in the separate account do.