Annuity
An insurance contract converting a premium into future income.
What is Annuity?
A contract with an insurer providing tax-deferred growth and, in the payout phase, income that can be guaranteed for life. Fixed, variable, and indexed varieties differ enormously in cost and complexity. Surrender charges, riders, and fee layers make suitability analysis essential.
Annuity: a worked example
$200,000 into an immediate annuity might pay a 65-year-old roughly $1,200 a month for life.
More terms in Securities & Instruments
Common Stock
An ownership share in a company, with voting rights and last claim on assets.
Preferred Stock
Equity with a fixed dividend and priority over common, usually without votes.
Bond
A loan to an issuer that pays interest and returns principal at maturity.
Coupon Rate
The bond's stated annual interest as a percentage of par.
Yield to Maturity (YTM)
The total annualized return if you buy today and hold to maturity.
Par Value (Face Value)
The principal repaid at maturity, conventionally $1,000 per bond.
Duration
A bond's price sensitivity to a 1% change in interest rates.
Credit Rating
An agency's assessment of an issuer's likelihood of default.