There is no question that annuities are viewed as dull and boring. I'm often asked, "Why Consider an Annuity?". If you find GIC rates too low or equity-based investments (mutual funds, ETFs or stock and bond portfolios) too volatile, then an annuity which offers safe and secure regular payments may be a worthy consideration.   This article will present a brief overview of annuities.

Terminology

Life Annuity

Life annuities are sometimes called “Payout Annuities” or SPIAs (pronounced “SPEE-ah”) which stands for Single Premium Immediate Annuity. As the name suggests, you invest a lump sum of money i.e. a "single premium" and in return the life insurance company begins paying you a regular income for the rest of your life. 

Term-Certain Annuity

A less common annuity is a term-certain annuity.  The term certain annuity pays income for a specific term and then ends.  It is used when a person wants a specific payment for a specific period of time, typically 5 years or more in duration.

How to Purchase

You cannot buy a life annuity online or from a life insurer directly. They must be purchased  through an "life licensed" insurance agent. A term-certain annuity can be purchased from a bank.

There are many considerations that affect the pricing of an annuity as follows.

• Your age,
• Current interest rates,
• Joint Life Annuity -  The payment is based upon both lives such as a husband and wife where payments continue until the last surviving spouse passes away,
• Guarantee period - How long the payments are guaranteed for in the event you were to pass away prematurely,
• Continuation % - If Joint-life, is there a reduction in payment when the primary spouse passes, or does it reduce by a certain percentage.
• Payment start date - Will the payments start immediately, or not for a period of time (months or years),
• Payment frequency - Monthly or annual payments and
• Inflation protection - Will the payment increase annually or remain level for life?