An annuity is a legal contract between you and an insurance company. In a nutshell, you give money, or "premium" to a life insurance company in exchange for a contract guaranteeing you a future stream of income. The income stream can begin immediately with an immediate annuity, or at a future date, with a deferred annuity.
Because an annuity is a legal contract, you must be at least 18 years old to purchase an annuity. In practice, however, many companies will not sell certain kinds of annuities to very young people or very old people, due to the poor suitability of these products for people in these age groups.
Read More: Differences Between an Annuity & a Perpetuity
Regulatory Overview for Annuities
Annuities are insurance products, and as such are regulated by state regulators rather than at the federal level. Each state, therefore, can impose its own limitations and qualifications as to whom can purchase an annuity. Each state has an agency overseeing and regulating the insurance industry in that state and providing consumer protection.
The National Association of Insurance Commissioners is the supporting national body that provides standards and support to the individual state agencies. There are also state guaranty associations that will ensure that insurance policyholders are covered if an individual insurance company defaults.
Different states can impose a different age of majority, which is the age at which a person is held legally responsible for his or her actions. In most states, the age of majority is 18. Mississippi, however, defines the age of majority at 21. In most states, there is also a "free look" period that allows a consumer to review the policy and cancel it without penalty.
Age for Buying Fixed Annuities
Even where a very young person can legally enter into an insurance contract, many companies will not sell an immediate lifetime income annuity to a very young person. The reason is that these contracts essentially lock in a relatively low payout rate for the annuitant for life.
Most very young people would be better off investing their money for the long term and getting better returns, rather than locking themselves into a low stream of income off of a lifetime income annuity. Some annuity companies will not sell these products to people younger than age 40, for example.
Age Requirements for Beneficiaries
You can be an annuity beneficiary at any age. In fact, it is not uncommon for grandparents to name a minor grandchild as a joint annuitant on a lifetime income annuity. The result is that the child will receive a sum of money every year, after the grandparent dies, for the rest of the grandchild's life.
These are often marketed to grandparents who have their own income needs comfortably met as gift ideas. The annuity age requirement for a beneficiary in the case of an inherited annuity is 18 years of age before that beneficiary can receive the inherited funds.
What About Qualified Annuities?
Employers can offer annuities as part of their qualified retirement offerings to employees. Qualified retirement plans can include qualified annuities. These are retirement plans that are funded with pre-tax dollars.
The Insurance Information Institute lists common examples of qualified retirement plans that can include qualified annuities would be 401(k), SEP-IRA, SARSEP, SIMPLE IRA and 403(b) plans. The government has strict guidelines regarding employer-sponsored retirement plans outlined by the IRS and the Department of Labor, this includes age limits for participation.
Annuities are popular investments especially within 403(b) plans offered by tax-exempt employers. Qualified annuities in 403(b) plans are also called "tax-sheltered annuity plans," because of the predominance of annuities within these plans. Per the IRS, participants in employer-sponsored retirement plans must be at least age 21 to participate.
Read More: Examples of Annuities
Jason Van Steenwyk has been writing professionally since 1998. A former staff reporter for "Mutual Funds Magazine," he has been published in "Wealth and Retirement Planner," "Annuity Selling Guide," "Registered Rep." "Bankrate.com" and "Senior Market Advisor." He holds a Bachelor of Arts in humanities from the University of Southern California.