Definition of Annuity
An annuity is a contract signed between two parties. One party is the person or individual who makes a collective installment to the second party which may be the insurance company or banks who pay the normal payment at the start or with a date within the future.
Examples of Annuities:
- Regular deposits to saving accounts
- Monthly insurance payments
- Monthly pension payments
- Monthly home mortgage payments
There are 5 types of annuities - variable, registered index-linked, fixed, Immediate & fixed indexed. These types are classified according to the frequency of payment dates. The payments may be made on weekly, monthly, quarterly, yearly or at any other decided regular interval between both parties.
The formula of Annuity: