An “immediate annuity” begins the payouts as soon as the customer has given the insurance company a lump sum. A “deferred annuity” begins the payments at some set point in the future, usually around retirement.
Customers may also receive their payments more than once. An insurance policy usually makes a single payment to help customers suffering a loss. But the key benefit of an annuity is usually its guarantee of multiple payments over a number of years.
An annuity gives investors a stable income. Investors will know that for a set number of years—and even for the rest of their life—they’ll receive a set monthly income.
Investors can opt to receive a lump sum if they prefer. They’ll know that when they reach a particular age, they’ll have some money coming to them and can choose spend it or reinvest it as they wish. Either way, they’ll know how much they’ll have to live on in for their remaining years. That makes an annuity a useful alternative or supplement to a pension fund.