life annuity
Quick Summary
A life annuity is a type of contingent annuity where payments are made for the rest of the holder's life. This means each payment is contingent on the survival of the annuity owner. In exchange for an initial payment or series of payments, the annuity holder receives a steady income stream, similar to a pension.12
The cost of a life annuity is based on the annuitant's life expectancy. It operates on a risk-sharing principle, where many individuals of the same age contribute to a fund. This fund is calculated to provide income for life to each person, with some receiving more than they contributed and others less. This allows for potentially higher payments than could be obtained through simple investment. A drawback is that upon the annuitant's death, nothing remains for their heirs.1
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