The ordinary annuity con-
tract is an agreement whereby the company promises, in return
for a cash payment made in advance, to pay the annuitant
while living an agreed amount annually, semi-annually, or
quarterly, such payments to cease whenever death occurs.
The purchase of an annuity therefore represents the purchase
of a fixed income, and the general purpose of the contract is
seen to be the reverse of that accomplished under life insurance.
As was the case with life-insurance policies, annuities may
be of various kinds. The annuity may be one for the
whole of life (a life annuity) or merely for a stipulated term
(a term annuity). Sometimes it is provided that a stated
minimum number of annuity payments shall be made under
any circumstances, as, for example, that at least ten annual
payments are guaranteed although the annuitant may have
died before the expiration of that time. So-called " deferred
annuities " may also be granted for the purpose of enabling
the purchaser to provide an income for himself at some future
time, and the purchase price of such an annuity may take the
form of a single premium at the time of purchase, a level
premium during the entire time between the date of purchase
and the commencement of the annuity, or the payment of a
limited number of premiums under the limited premium payment
plan. Under the ordinary annuity, the first annuity is
usually payable three, six, or twelve months following the
date of purchase, whereas under the deferred annuity the payments
do not begin until the purchaser reaches a certain age,
such as twenty or thirty years following the age at purchase.
Should death occur during this twenty- or thirty-year period,
no refund of the premiums or purchase price is ordinarily
made; although it is entirely feasible under the deferred annuity
plan to provide that in case of death before the annuity
payments begin, the premiums which may have been paid shall
be refunded to the heirs of the purchaser. It should also be
stated that two persons, such as husband and wife, or two
sisters, may purchase an annuity payable to them jointly while
both live and also continuing during the lifetime of the survivor.
As has been well stated : " By this means an income
is provided so long as the survivor of the two can possibly
require it. The same principle may, of course, be extended
to three or more lives, but the circumstances are rare when
such annuities are desirable, while for two lives it is a common
form of contract."
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