The life annuity is a financial contract according to which a seller (issuer) - typically a financial institution such as a life insurance company - makes a series of payments in the future to the buyer (annuitant) in exchange for the immediate payment of a lumpsum (in the case of a single-payment annuity) or a series of payments prior to the return payments. The payment stream from the issuer to the annuitant has an unknown duration based principally upon the date of death of the annuitant: it generally stops then. Thus it is a form of longevity insurance.

It is possible to structure a life annuity so that the payments instead only stop upon the death of a second of two annuitants (i.e., a joint and survivor annuity); sometimes the instrument reduces the payments to the second annuitant.

With a "pure" life annuity an annuitant may die before recovering their investment in the annuity. If the possibility of this situation, called a "forfeiture", is not desired it can be ameliorated by the addition of an added clause under which the annuity issuer is required to make annuity payments for at least a certain number of years (the "period certain"); if the annuitant outlives the specified period certain, annuity payments then continue until the annuitant's death, and if the annuitant dies before the expiration of the period certain, the annuitant's estate or beneficiary is entitled to collect the remaining payments certain. The tradeoff between the pure life annuity and the life-with-period-certain annuity is in exchange for the reduced risk of loss, the annuity payments for the latter will be smaller.

Annuities are one of the many Retirement Income Options (RIOs) available today to help fund your retirement needs. What distinguishes annuities from other RIOs is that annuities are binding contracts between the customer and the issuer, providing the customer with a set amount of money based on their desired payment schedule (weekly, biweekly etc.). The size of the payment amount is determined using payment frequency, the original investment, the prevailing rate of interest, the type of annuity option and the age/sex (customer's or spouse's) used to calculate the duration of the annuity.

Straight Life Annuity

Provides an annuity for the duration of the customer's life. Although this type of annuity provides the highest level of income, it also carries the largest drawback in that payments cease as soon as you die, even if that happens one year into your contract.

Life Annuity with Guaranteed Number of Payments

Similar to the Straight Life Annuity, this annuity limits the shortcoming of the above-mentioned annuity by providing guaranteed payments (five, 10, 15 or 20 years) even if the annuitant passes away one year into their contract.

Joint and Last Survivor Annuity

This type of annuity provides income for two people. It ensures that the surviving annuitant has a steady flow of income until they pass away.

Installment Refund Annuity

This type of annuity is very similar to that of the Life Annuity with Guaranteed Number of Payments, the difference being the guaranteed amount to be paid is based on the initial investment and not a set number of years.

Cash Refund Annuity

Provides the customer with an annuity with the added protection that if they pass away before their annuity payments exceed their initial investment, a named beneficiary or the customer's estate will be entitled to receive the balance in cash.

Fixed Term Annuity