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An annuity is a contract between an individual and an insurance company that provides periodic payments to the individual or designated beneficiary. An annuity contract agrees to provide payments to the annuitant beginning at a specified date — for example, age 65. The payments may continue for the lifetime of the annuitant or for an agreed-upon number of years.

Examples of annuities:

  • Single Life Annuity (sometimes called Life or Straight Life Annuity) — A benefit is paid for the participant’s lifetime only. After the annuitant’s death, no further benefits are payable.
  • Life and Five Years Guaranteed Annuity — A benefit is paid for the participant’s lifetime with a guarantee of five years of benefits. Example 1: A participant elects this benefit and lives for another 15 years. She recevies annuity payments for this entire time, with no benefit payable to a beneficiary. Example 2: A participant elects this benefit and receives two years of benefits before her death. Her beneficiary would then receive three years of payments, up to the five year guarantee.
  • Life and Ten (or Fifteen) Years Guaranteed Annuity — This is the same benefit as a Life and Five Guaranteed annuity, only with a longer guarantee period.
  • Joint and 50% Survivor Annuity — A benefit is paid to the participant for his/her lifetime. After the participant’s death, 50% of that benefit continues to the surviving spouse.
  • Fixed Annuity — A fixed payment amount is made to the annuitant — the amount does not change, or if it does, it changes at specific intervals as stated in the contract.
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