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.
Related or Semi-related Video
Finance: What is Perpetuity?44 Views
finance a la shmoop. what is a perpetuity? forever. that's what you should think
when you hear the word perpetuity. well a perpetuity is a cousin to an annuity.
in an annuity you invest a given amount of money and then you get a portion of [100 dollar bill]
that dough paid out to you over a set number of years, or in the vein of a life
insurance policy it gets paid out until you are you know doing backstroke Six
Feet Under. and annuity sunsets well basically when you. do but a perpetuity [skeleton in the ground]
outlives you. it pays forever even when you're dead. so why would anyone want one
of these things? well they work for university scholarship endowments. you
know like think about a great Italian literature philanthropist named well
let's say Bella pepperoni. no offense to our Italian shmoopers out there. she made [woman wears name tag]
her fortune analyzing the works of Dante and Machiavelli and wants to endow a
scholarship for other PhDs in Italian Lit forever. well she'd put in say a
million bucks and it might get invested in half and bonds half in stocks with
yield and the throw from that million bucks might be something like a four or
five percent a year or forty or fifty grand and that would be more than enough [equations on screen]
to cover the basics for a PhD in Italian lit well more or less forever as
dividends get raised in stocks bro and all that stuff. the million bucks just
remains invested 50/50 stocks and bonds and the world continues to spin so yeah
even when she's no longer around to enjoy the fruits of her labor as well [headstone shown]
that fruit doesn't spoil develop mold and start to smell bad even if we can't
say the same for her. sorry. just keeping it real. [woman's picture next to casket.]
that's perpetuity. goes forever. perpetual.
Up Next
Technically, an annuity is any kind of regularly scheduled payment, usually made annually, quarterly or monthly...for the life of the recipient. Ev...