Annuity Definition and How they Work
An annuity can be defined as:
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A fixed sum of money paid to someone each year, typically for the rest of their life
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A form of insurance or investment entitling the investor to a series of annual sums
Most annuities are typically purchased from pension funds when people use the capital which they have accrued over their working lives and buy a guaranteed income stream for the rest of their lives. In return for the guaranteed income with a conventional annuity you give up all rights to the capital so in the event of your death there is no return of capital to your estate. There are some exceptions to this - lifetime annuities provide unless An annuity provides assurance that you will receive an income for the remainder of your life, even if the total amount of annuity you receive exceeds the amount of money you have saved towards your pension.
Insurance companies provide annuity plan quotes based on your personal circumstances, such as age, health and sex.
There are several types of annuity plans, which have been designed to suit a range of circumstances:
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Compulsory purchase annuities
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Impaired/enhanced life annuities
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Investment-linked annuities
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With-profits annuities
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Unit-linked annuities
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Purchased life annuities
If you are unsure of which annuity plan to choose, it is advisable to speak to a professional finance advisor about which annuity plan applies to your personal circumstances. See the service below.