What is an Annuity?

In the most basic terms, an annuity is an agreement for one person or organization to pay another a stream or series of payments. Usually the term “annuity” relates to a contract between you and a life insurance company, but a charity or a trust can take the place of the insurance company.

There are many categories of annuities. They can be classified by:
 Type of investment – fixed or variable
 Purpose – accumulation or pay-out (deferred or immediate)
 Pay-out commitment – fixed period, fixed amount, or lifetime
 Tax status – qualified or nonqualified
 Premium payment arrangement – single premium or flexible premium
An annuity can be classified in several of these categories at once. For example, you might buy a nonqualified single premium deferred variable annuity.