Annuity definition refers to the basic concept of an annuity as a contract between a client and an insurance company in which the client pays premiums or makes a lump-sum contribution in exchange for tax-deferred growth and the option to receive periodic income payments in the future. Annuities come in various forms, including fixed, fixed indexed, variable, and immediate or deferred structures. Their core purpose is to provide income that can last for a specified period or for the life of one or more individuals, helping address longevity risk. Annuities can also offer death benefits, living benefit riders, principal protection, or market participation, depending on product design. They are often used in retirement planning to convert accumulated assets into predictable cash flow.

Advisors begin annuity conversations with a clear, client-friendly definition, emphasizing that annuities are insurance contracts, not traditional investments, and that the issuing carrierTMs claims-paying ability backs guarantees. They then differentiate among fixed, indexed, and variable annuities, explaining how each handles risk and return. In practice, annuities are used to create income floors, supplement pensions, manage required minimum distributions, or provide structured payouts for risk-averse clients. Compliance requires that advisors explain both benefits and limitations, including fees, surrender charges, and tax treatment. Understanding the annuity definition at a conceptual level allows advisors to position more complex features within a simple, durable framework clients can grasp and remember.