The term annuity is derived from the Latin word annus, meaning year, and hence connotes an annual payment. A broader and more contemporary definition, however, is that an annuity is a periodic payment to commence at a specified or contingent date and to continue throughout a fixed period or for the duration of a designated life or lives. The person whose life governs the duration of the payments is called the annuitant. The annuitant may or may not be the person who receives the periodic payments, although he or she usually is. The income under the annuity contract may be paid annually, semiannually, quarterly, or monthly, depending on the conditions of the agreement. Normally the income is paid monthly.

If the payments are to be made for a definite period of time without being linked to the duration of a specified human life, the agreement is known as an annuity certain (exemplified by mortgages and bank loans). If the payments are to be made for the duration of a designated life, the agreement is called a life annuity or, more accurately, a single-life annuity. It is also referred to as a whole life annuity to distinguish it from a temporary life annuity, under which payments are to be made during a specified period of time but only for as long as a designated person is alive. In other words, a temporary life annuity terminates with the death of the designated individual or at the expiration of the specified period of time, whichever occurs earlier. The word life in the title of an annuity indicates that the payments are based on life contingencies or continue only as long as a designated person is alive. This chapter is concerned primarily with life annuities created by insurance companies.