In insurance terminology, the term annuity usually refers to a contract drawn up between an insurance company and an individual that accepts funds from the individual for the periodic disbursement of the funds during a later time frame. Annuities are generally used to create a steady stream of cash for the beneficiary once they retire.
For example, annuities can be structured according to the needs of each individual, with fixed payment annuities or variable payment annuities. Variable annuities generally depend on the performance of other assets for their return, while fixed annuities earn the prevailing interest rates during the accumulation phase before annuity payouts commence.Deposits earn interest, and once annualized, they provide the individual with a steady cash flow in the case of fixed annuities, and a variable cash flow in the case of variable annuities. An Annuity can be a way for growing funds while still employed that will later be disbursed to the beneficiary, generally upon their retirement.