Annuity Annuity – Definition, Types, Difference between Annuity and Life Insurance
Tuesday, 07 Mar 2023 00:00 am


Rigorously speaking, appropriations aren't life assurance contracts because similar contracts don't base on the life of a man’s life.

The element of risk coverage is not there, that is to say, the policy does not pay a capital sum on a man’s death.

This is not even the intention of the annuitant either.

Rather, it would be seen that typically payments are rather stopped on the annuitant’s death.

This is why typically it's said that the further and further bloodied an annuitant’s life would be, the more favorable term he'd admit from the insurers.

Indeed though appropriations aren't life assurance contracts, nonetheless, life services conventionally issue similar contracts.

Definition of Annuity

Annuity is a contract in between the insurance company( i.e., the party granting the subvention) and the annuitant( receiver of subvention) whereby in consideration of the payment of a purchase price by the annuitant, the other party( i.e., the insurance company) undertakes to make a monthly or periodic payment to the annuitant from a certain destined time until the annuitant’s death or for a fixed period.

An subvention is a journal position payment made in exchange for the purchase plutocrat for the remainder of the continuance of a person or for a specified period.

The philanthropist is generally as an annuitant. In subvention contract, the insurer undertakes to pay certain position totalities periodically over to death or expiry of the term.

Since at the early death, the insurer doesn't suffer loss, no medical examination is necessary. still, substantiation of age is essential at the time of offer.

The subvention is salutary to those who don't want to leave quantum for others but want to use their plutocrat during their continuance.

During the continuance, they may make maximum use of the plutocrat by copping an subvention, which isn't possible else.

In a bank, he may leave a certain quantum at beforehand, death or may suffer a loss in living long due to cessation of the plutocrat after a certain period. The payment of subvention generally continues up to the life.

thus,the decoration rate is determined according to life.

The amount premium is higher at a younger age and lowers at an advanced age.

Difference between Annuity and Life Insurance

An subvention contract is just contrary of the insurance contract,

  1. The subvention contract liquidates gradationally the accumulated finances whereas the life insurance contract provides gradational accumulation of finances.
  2. The subvention contract is taken for one’s own benefit but the life assurance is generally for benefits of the dependents.
  3. In subvention contract generally, the payment stops at death whereas in life insurance the payment is generally given at death.
  4. The decoration in an subvention contract is calculated on the base of life of the annuitant but the decoration in life insurance is grounded on the mortality of the policy- holder.
  5. An subvention is a protection against living too long whereas the life insurance contract is protection against living too short.

Both of these contracts complete the profitable programme of an individual from beginning to an end. When life insurance stops to serve the subvention contract starts to help the existent up to his survival.

Types of annuity

The annuities can be classified based on to;

  1. Commencement of income,
  2. Number of lives covered,
  3. Mode of payment of premium,
  4. Disposition of proceeds, and
  5. A special combination of annuities.

Annuities According to Commencement of Income

Appropriations according to the inception of income is classified into three; Immediate subvention, subvention due, and a remitted subvention.

Immediate Annuity

The immediate subvention commences incontinently after the end of the first income period.

For case,

still, also the first investiture will be paid at the expiry of one time, if the subvention is to be paid annually.


in a half-monthly subvention, the payment will begin at the end of six months. The subvention can be paid either yearly, half-monthly, daily or yearly.

The purchase plutocrat( or consideration) is in a single quantum substantiation of age is always asked for at the time of entry.

The advantage of this is that with this help if. is possible to gain a larger income that can be secured from the yield of investments.

The form of contract is of special interest to persons without dependents and it provides maximum possible harmonious income.

Annuity Due

Under this subvention, the payment of investiture starts from the time of contract. The first payment is made as soon as the contract is perfected.

The decoration is generally paid in single quantum but can be paid in inaugurations as is bandied in the remitted subvention.

The difference between the subvention due and immediate subvention is that the payment for each period is paid in its morning under the subvention due contract while at the end of the period in the immediate subvention contract.

The subvention due contract is salutary for actuarial valuation.

Deferred Annuity

In this subvention contract, the payment of subvention thresholds after a promptness period or at the attainment by the annuitant of a specified age. The decoration may be paid as a single decoration or in inaugurations.

Generally, the remitted subvention is vended on position decoration.

The payment of decoration continues until the pronounced date for inception of the inaugurations or until the previous death of the annuitant.

At the death, the decoration may be returned without interest The remitted subvention can be surrendered for a cash quantum( or cash option) at the end of or before the promptness period.

The rendition value is typically 950 percent of the decorations paid banning the first decoration before the promptness period. No rendition value is outstanding after the promptness period.

The remitted subvention can be issued to manly or womanish lives. The womanish lives are generally suitable to mileage a lower quantum due to their advanced life as compared to manly lives after a certain age.

The pot doesn't bear any medical examination but only evidence of age is needed.

This subvention is useful to those who ask to give a regular income for themselves and their dependents after the expiry of the specified period.