Annuity definition,meaning and types

Annuity is defined as the amount of guaranteed cash or lump some amount of cash you receive in a timely manner(yearly or at regular intervals) either for a particular and specific period of time or

Annuity is defined as the amount of guaranteed cash or lump some amount of cash you receive in a timely manner(yearly or at regular intervals) either for a particular and specific period of time or during your lifetime in return  for your long term investment with the financial institution.

Annuity Meaning

In the simplest words annuity, means an amount of cash you receive in a timely manner for the specific time period. In other words, it is the recurring amount of cash you receive for your investment annually. The amount that you invest is a long term investment.

For example-

Mr. Jacob, a businessman invests  5000$ in a bank as a recurring deposit on 1st January 2017. He pays 5000$ every month. His recurring deposit period is for one year. After one year( that is on 1st January 2018)  Jacob receives his cash in addition to the interest which is paid by the bank. He will receive a lump some amount

Types of annuity

  1. Deferred annuity – Here you need to make investment for many years that is for a long period of time.  You don’t  get returns immediately. You will most probably get the returns when you retire. As the name suggests deferred means postponing  to a later date or future date.  Hence the returns here are in the future after making a long tern investment.
  2. Immediate annuity– You start getting the returns after you make an investment. The investment should not be too small but huge and lump some investment has to be made only then will you get the return. Immediate means soon after.  Hence you get your returns soon

 

 

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