Many of us may have heard the word annuity, especially those in the insurance industry. But what really do we mean by life annuity. Life annuity is one of the insurance provided products, which come with predetermined payments on a periodic basis, these payments are made until the death or retirement of a person taking the life insurance policy. It is normally taken for the sake of preparing for days after retirement, and may give pensioners something to fall back to once they are out of active employment or work.

Preparation
One may also put a lump sum payment and this would then be paid periodically after an agreed time. We are all aware that in life there are two huddles that we need to pass, one is birth and another is death, which are both compulsory, and it is also prudent that we know that we will not always be able to get up in the morning and go to work as usual. It then only becomes logical that we plan for the gloomy days ahead and we plan by having insurance policies where we pay some life annuities into it. The money that we put aside either in lump sum, annually, semi-annually, quarterly or monthly, will one day help us or help our next of kin.

Purpose
The intentions of signing life assurance policies and making the annuity payments may seem perfect, but some wealth individuals have taken advantage of the legal loopholes. Governments have put laws in place in a bid to encourage citizens to save money for the later days; partly because governments may find them a burden to take care of. Thus, making tax exemption on annuities made to insurance companies or pension funds. Wealthy individuals have taken advantage of this goodwill, these wealthy individuals make huge payments to this insurance firm with the sole intention of evading tax. Though some governments, in a bid to curb the menace, have introduced caps on how much tax allowance one can get on the annuities paid.

Type of annuities
What are the types of annuities available? We have various types of annuities available from variable or fixed to guaranteed annuities. Fixed annuities, as the name suggests, is when one makes a fixed payment and the interest rate is all predetermined, whereas the variable annuities as the name suggest is when one pays varying amounts in a accordance to the prevailing performance of an investment. Joint annuities are where there are joint contributions, and payments stop upon death of both or one of the joint signatories.

Calculations
Calculating what annuities one is supposed to pay may not be an easy task, as this involves comparing future cost with present, using complex discounting techniques, and many people, especially those without the mathematical acumen, may find this really difficult. This at times brings a lot of confusion and may break the trust between the insurance firms and their customers. It is important that one gathers as much information as possible on how to make these calculations. That way, one is also able to make a much informed decision and not end up regretting when it is indeed too late to reverse any decision made.

Specialist
There are life annuity specialists who can give professional advice on individual circumstances. They would provide various quotations and one can choose from them. It is unfortunate that many of us start to think of life annuities when we have approached old age. At that stage, many have only a few years before retirement. If one were to start earlier in life, then the payments would be even more cheap, as the payments made would have accumulated far more interest over the years. Though, the tricky bit is that inflation over time would undermine the value of money that one expects. A hundred dollars in 1995 is not the same as a hundred dollars in 2010, certainly a hundred dollars will do much more in 1995. Based on the country you live in, you will find inflation rates varying. A country like Zimbabwe has over 10,000 percent inflation compared to the single digit inflation rate in most western countries.

Purpose
The purpose of investing in life annuities is not just solely based on retirement; though that is important. Many people invest in them for a variety of many other reasons- to guarantee a source of income for your children or dependents after your death or retirement, funding education.

Life annuities
Life annuities can be purchased with funds from a variety of possible sources, such as a maturing Certificate of Deposit (CD); money which have accumulated in a Deferred Annuity account; or funds from a tax-qualified defined benefit, 401k or IRA account.

Uses
Single Premium Life Annuities are flexible and suitable for a variety of income needs. They are most typically used to fund income requirements while in retirement. However, they can also be used to provide a source of income to dependents after your death, to provide specified child support, to fund specialized education for a disabled child, or to consolidate assets and turn them into an income stream.