In the context of life insurance, what is an annuity?

An annuity is a financial product that pays income over a specified period, typically in exchange for a lump sum payment made initially or through a series of payments over time. This characteristic is integral to the purpose of annuities, which is to provide a steady income stream, often during retirement. Annuities can be designed to pay out for a fixed number of years, for the lifetime of the annuitant, or even for both, depending on the specific terms and conditions of the product.

The nature of an annuity distinguishes it from the other options. A one-time payout to beneficiaries relates to life insurance policies, which provide a death benefit, but that’s not reflective of what an annuity does. Policies that cover life until a specific age are generally term life insurance policies, while health insurance plans are designed to cover medical expenses, not income disbursement like an annuity. Thus, the correct choice accurately captures the essence of an annuity and its function in financial planning and retirement strategies.