Annuities are a type of financial product that provides a reliable source of income for individuals, often used for retirement or long-term savings. These relatively low-risk investment contracts offer guaranteed returns in exchange for a lump-sum premium paid to an insurance company. In return, the insurance company agrees to provide the policyholder with fixed, periodic payments over a specified period of time. Whether you’re looking to secure your retirement or ensure a steady income stream, annuities can be an essential tool for financial stability.

An annuity is a contract between an individual (the policyholder) and an insurance company. The policyholder pays a lump sum premium upfront, and in return, the insurer guarantees a series of periodic payments that are made to the individual over a set period of time. The length of the payment period is usually determined by the policyholder, and the insurer uses the lump sum premium to invest and generate profits. These profits, or returns on investment, fund the future payments made to the policyholder, while compensating the insurer for administering the contract.

Annuities are particularly popular for individuals looking for a predictable and guaranteed income stream, such as during retirement. They provide financial security by ensuring that the policyholder will continue to receive payments until the terms of the contract are met—either until their death, the death of a beneficiary, or a predetermined end date.