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Annuity

\əˈnuəti\

A financial instrument offered by an insurance company that pays a regular income to the recipient either for the rest of their life (a lifetime annuity) or for a fixed period (a fixed term annuity).

The insurance company bears the uncertainty associated with the rate of return that will be achieved on the underlying assets (investment risk) and for a lifetime annuity, how long the person will live (longevity risk). 

Lifetime annuities come in many different varieties, with optional features including rates of increase, guarantee periods and payments for surviving dependants. The common theme is that protection against longevity risk and investment risk is provided in a single bundled product. 

The cost of lifetime annuities rises as expectations of life increase. 

Keep exploring our Lexicon of Longevity
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