A Life Annuity is a specific contract wherein an insurer agrees upon consideration of a certain payment, to pay the beneficiary a pre-fixed sum of money during a given period of time or until his death. This payment made in a periodical nature is termed as annuity and the person receiving such payment is known as annuitant.
An annuity can be looked upon as a pension provided by the annuitant from out of his own savings. Strictly speaking, a life insurance annuity is a reversal of a general life insurance. Here, unlike a general insurance, where a fund is created by payment of premiums, the annuitant is actually consuming the fund over his life time. It is a characteristic of a life annuity that the annuitant who lives longer, receives an amount which is more than his contribution.
The objective of a life annuity is to provide protection against the absence of income after an untimely death of the person insured.
The most common forms of annuities are the immediate annuity, the deferred annuity and reversionary annuity.
