If you wonder what annuity means, then this guide is for you! Annuities are types of investments that can provide income regularly. They often come in the form of an insurance policy or retirement plan. An annuity may be a good choice if you want to have a steady source of income and don’t want to worry about making investment decisions every year. In the following guide, we will explore what the term “annuities” means are and the history behind it.
What Does The Term “Annuity” Mean?
The phrase annuity refers to a Greek term (annus) meaning “year” and refers to an income payment made every year. An annuity is a financial instrument that, through yearly payments to an annuitant, systematically distributes a principal amount over a lifetime. An annuity, in its original sense, is a financial product that provides a benefit that no other vehicle can match; the benefit is an income that cannot be outlived, no matter how long the individual’s lifetime lasts.
However, if you think about annuities in terms of a life income, this explanation does not go far enough. Annuities are also commonly used in today’s economy to accumulate the cash required to provide a retirement income.
Annuities In The United States
Annuities were first offered to the American public in the middle of the eighteenth century, but they didn’t really catch on until the 1930s, during America’s Great Depression. Because the interest rates in the economy were extremely low, individuals who had cash wanted to make sure they had a steady and secure revenue stream, and the popularity of the annuity soared. By 1933, approximately 300,000 annuity contracts had been granted in the United States.
Who Buys Annuities Today And why?
The nonqualified annuity’s main market is the middle-income sector, which generally includes individuals with annual incomes below $100,000. Because annuities are primarily used for retirement income, the typical annuity holder is older than 70 years old. The reasons why consumers acquire annuities are not particularly unusual. They buy them to provide an income for themselves or a spouse. Other considerations include having money available in case of an emergency.