Annuity Consideration

The "annuity consideration" sounds like the title to an episode of The Big Bang Theory. But in reality, it's the amount of money you have to pay an insurance company to get an annuity.

An annuity works by paying a large, lump sum payment to an insurance company. In return, the firm agrees to issue you regular payments down the line. You are basically buying future income, but have to hand over a big bag of money to do it (actually, most people use checks, or maybe electronic payments...it's hard to find those sacks with the big dollar signs printed on them).

People sometimes refer to the annuity consideration as the "premium," because the money you give to an insurance company is typically called a premium.

In that respect, you can think of an annuity as the reverse of normal insurance. In normal insurance, you pay the insurance company small, regular payments over a long period of time, and if something happens, they write you a big one-time check. For an annuity, you write a big one-time check (or use a bag of money, if you can find one) and then get small, regular payments over a long period of time in return.