Annuity

An annuity is longevity insurance. You give an insurer capital; it guarantees payments — for a set period, or in a life annuity, for as long as you breathe. It's the mirror image of life insurance: life insurance protects your family against you dying too soon, an annuity protects you against living too long and outliving your money.

The taxonomy is simpler than the brochures make it. By start date: immediate (income begins within a year) or deferred (the money grows tax-deferred first, income later). By growth engine: fixed (a guaranteed interest rate, like an insurance-company CD), fixed-indexed (interest tied to a market index with a floor of zero — the annuity cousin of Indexed Universal Life (IUL)), or variable (invested in subaccounts, market risk included, fees often heavy).

What annuities do uniquely well: create a guaranteed income floor. Social Security plus an income annuity covering your essential expenses means the market can do whatever it wants — the lights stay on. That floor changes how aggressively the rest of a portfolio can be invested and how confidently Cash Value can be deployed elsewhere.

What to watch: surrender charge schedules that lock capital for 7–10+ years, income riders with fees that quietly consume the benefit they advertise, and the difference between the "income account value" (a calculation basis, not money) and the real account value. An annuity is a contract — the guarantees section is the product; the marketing sheet is not.

Annuities and Whole Life Insurance often work as a pair in distribution planning: the annuity guarantees lifetime income, the whole life policy provides liquidity via policy loans and restores the estate for heirs through the Death Benefit. Moving money between contracts, when warranted, is usually done tax-free via 1035 Exchange.