What Is Annuity Income?

by Prisca Rollins ; Updated July 27, 2017

Annuity income is income that a life insurance company pays for a specified number of years. An annuity is not a life insurance policy; it pays out income while you're alive rather than after you die. If you die before the payout begins or ends, your beneficiary will receive what you paid into the plan--in effect, a death benefit. Income from an annuity is used to provide financial protection against the risk of outliving your income. Annuity income payments are made over a period of time, and you can choose to have them disbursed monthly, annually or at your discretion.

Types

There are different ways to establish an annuity. You can make one premium payment in one lump sum and have the annuity payments begin immediately after the purchase. A second option is to make one lump sum payment and have the annuity payments begin one or more years after the payment. The third option is to make installment payments over a number of years and have the payouts begin at a predetermined time in the future (usually 10 to 20 years).

Reasons for Purchase

Some people purchase an annuity because they're concerned that they will outlive their income. Others use it as a supplement to their retirement income or, in the case of the joint and survivor annuity, to take care of a loved one after their deaths.

Straight Life Annuity and Life with Period Certain

A straight life annuity pays income as long as you are alive. A period certain annuity income pays for a specified period, regardless of whether the annuitant is alive.

Life with Refund and Joint and Life Survivor

A life with refund annuity is payable only if the annuitant lives. If the annuitant dies and has not been paid back the balance, it is paid to the beneficiary. A joint and life survivor annuity is payable to the annuitant while both the annuitant and survivor are living, then to the survivor once the annuitant dies.

Variable Annuity

A variable annuity is a contract in which the amount of the periodic benefit varies, usually in relation to stock market values or cost of living index. As opposed to a fixed or guaranteed return annuity, the value of a variable annuity can change from year to year and is based investment performance.

About the Author

Prisca Rollins majored in accounting in college and minored in business. She was a Vet and Surgical Tech in the Army and a contractor with the US Army as an Admin and Marketing Coordinator overseas. Rollins is TESOL certified and has taken the PHR and Life, Health and Annuity Insurance Course.