An annuity is a contract between an individual and an insurance company where the individual makes a series of payments that are invested by the company and repaid to the individual at a later date–generally during retirement. Annuities may be fixed or variable.

It’s a life insurance contract sold by insurance companies, brokers, and other financial institutions. It is usually sold as a retirement investment. An annuity is a long-term investment and can have steep surrender charges and penalties for withdrawal before the annuity’s maturity date. (Annuities are not FDIC insured.) The contract provides for specific payments to be made at regular intervals for a fixed period or for life.