An annuity is a financial contract between an individual and an insurance company. The individual pays a lump sum or a series of payments, and in return, the insurer provides income distributions either immediately or at a future date. Annuities can be structured as immediate or deferred, with income payments varying based on the type of annuity purchased (e.g., fixed, variable, or indexed) and the terms of the contract.

Annuity payouts are influenced by several factors, including the amount invested (premium), the annuitant's age, life expectancy, and any additional features like inflation protection or death benefits. For example, selecting options such as a joint-and-survivor payout or inflation adjustments may lower the initial payment amount but provide added benefits.

The safety of an annuity depends on the financial strength of the issuing insurance company. Fixed annuities are generally considered safe because they offer guaranteed returns. However, variable annuities carry investment risk as they depend on the performance of underlying assets. Additionally, state guaranty associations provide some protection (typically up to $250,000) in case the insurer defaults.

If you pass away before receiving payments equal to your premium, certain types of annuities (e.g., those with a return-of-premium guarantee) provide a death benefit to your beneficiaries. This benefit equals the difference between your total contributions and the payments received. Without such features, remaining funds may stay with the insurer unless specified otherwise in the contract.