Life · Chapter 9 · Purpose & Phases
Annuity
Definition
A contract — sold only by life insurance companies — that provides a steady income stream and protects against outliving one's assets. Life insurance creates an estate at death; an annuity systematically LIQUIDATES an estate. Premiums and payments are based on mortality, so it's a risk-sharing contract: dying early benefits the insurer, living long benefits the annuitant.
In plain English
Life insurance protects your family if you die too soon. An annuity protects YOU if you live too long — it turns a pile of savings into a paycheck you can't outlive.
Exam tip
"Creates an estate" = life insurance. "Liquidates an estate" = annuity. The exam loves this one-word swap.
Easy to confuse with
These are what this term gets tested against — if you can't tell them apart cold, drill the contrast.
Related terms