What to know about purchased life annuity rates comes down to understanding, first of all, what a life annuity is and then understanding the rate of return on investment that one could gain from the purchase of such an annuity. Keep in mind that an annuity is a financial product sold generally buy insurance companies through independent insurance agents, by the way.

Any annuity is a financial contract, first and foremost. It is an insurance product aimed at making a series of payments in the future to someone who purchases at. This person is usually known as the annuitant. An annuity is funded by the annuitant either by payment of a single lump sum of money, which is known as a single-payment annuity, or by a series of regular payments, which are known as regular-payment annuities.

Purchased life annuity rates have the same characteristics as rates of return on just about any insurance product or financial and investment product, even if they are based on the performance of the funds underlying the annuity that a person has purchased. All payments made to the annuitant occur only after the annuity has been funded to an agreed-upon amount between the company selling the annuity and the annuitant purchasing it.

Anyone who is considering purchasing any sort of annuity, whether it is a fixed rate or a variable rate in addition to life annuity products (a life annuity pays out until the death of the person who purchased the annuity) should always learn as much as they can about rates of return, including for purchased life annuity rates. Basically, the rate of return is what one can expect to get back from the annuity on a regular basis in terms of payments.

Purchased life annuity rates, which pay out until the death of the person who bought the annuity, are pegged to certain funds that underlie and support the annuity in question. Most often, the money that a person has paid in order to set up the annuity will be applied towards either stocks or government bonds of some sort. One should also keep in mind that a purchased life annuity ends upon the death of the annuitant.

This can mean that any money left in the annuity will revert to the insurance company. Insurance companies are masters at life annuity policies and determining just how long a potential annuitant may live and then setting annuity funding payments at a commensurate rate.  This is so that the insurance company generally ends up with some amount of money in the annuity left over at the end of that person's life.

That's why purchased life annuity rates may not be as high as the rates available from a variable life annuity, but also why they can many times pay higher rates the deeper into life a person is, even though the company may demand a higher upfront funding payment in order to get that rate. That's because the insurance company – through the use of very scientific actuarial formulas – has determined that it will most likely end up making money off the annuity. Of course, if the person lives another 30 years, the insurance company is going to have to make payments for that whole time.