Annuities & Retirement – Life & Health Insurance License Exam

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An annuity is designed to provide a steady income stream, primarily to protect against the risk of outliving one's assets (longevity risk).

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The accumulation phase (pay-in period where money grows) and the annuitization phase (payout period where the insurer makes periodic payments to the annuitant).

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The owner controls the contract and pays premiums, while the annuitant is the person whose life expectancy determines the payout. These can be the same person or different people.

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A pure life annuity pays income only for as long as the annuitant lives, with no further payments upon death—even if the annuitant dies shortly after annuitization.

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A fixed annuity credits a guaranteed minimum interest rate with no investment risk to the owner, while a variable annuity's value fluctuates based on the performance of separate account sub-accounts chosen by the owner.