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A life annuity is a financial contract in the form of an insurance product according to which a seller (issuer) - typically a financial institution such as a life insurance company - makes a series of future payments to a buyer (annuitant) in exchange for the immediate payment of a lump sum (single-payment annuity) or a series of regular payments (regular-payment annuity), prior to the onset of the annuity.
The payment stream from the issuer to the annuitant has an unknown duration based principally upon the date of death of the annuitant. At this point the contract will terminate and the remainder of the fund accumulated is forfeited unless there are other annuitants or beneficiaries in the contract. Thus a life annuity is a form of longevity insurance, where the uncertainty of an individual’s lifespan is transferred from the individual to the insurer, which reduces its own uncertainty by pooling many clients. Annuities can be purchased to provide an income during retirement, or originate from a structured settlement of a personal injury lawsuit.
Phases of an annuity
There are two possible phases for an annuity:
1 - The accumulation phase in which the customer deposits and accumulates money into an account, and;
2 - The distribution phase in which the insurance company makes income payments until the death of the annuitants named in the contract.
It is possible to structure an annuity contract so that it has only the distribution phase; such a contract is called an immediate annuity.
Annuity contracts with a deferral phase-deferred annuities-are essentially two phase annuities, but only having growth of capital by investment in the accumulation phase (now the deferral phase), with no customer deposits.
- Life Insurance Alex Nelson proudly serves the South Florida cities from Boca Raton to Homestead including Coral Springs, Fort Lauderdale, Miramar, Aventura, Doral, Coral Gables, Miami Beach, and Kendall with friendly insurance expertise.
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