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💰 '''Life annuity''' is a contractual arrangement, typically issued by a [[Definition:Life and health insurer | life and health insurer]], under which the insurer promises to make periodic payments to an individual — the [[Definition:Annuitant | annuitant]] — for as long as that person remains alive. At its core, a life annuity transfers [[Definition:Longevity risk | longevity risk]] from the individual to the insurer: the annuitant receives a guaranteed income stream that cannot be outlived, while the insurer pools mortality risk across a large group and relies on actuarial probabilities to manage its aggregate exposure. Life annuities have been a foundational product in the insurance industry for centuries, serving as the primary mechanism through which individuals convert accumulated wealth into sustainable retirement income.

🔄 The mechanics begin with the annuitant making either a single lump-sum [[Definition:Premium | premium]] payment or a series of contributions during an accumulation phase. Once the payout phase commences — either immediately in the case of an [[Definition:Immediate annuity | immediate annuity]] or at a future date for a [[Definition:Deferred annuity | deferred annuity]] — the insurer calculates periodic payments using [[Definition:Life contingencies | life contingency]] mathematics that incorporate [[Definition:Mortality table | mortality tables]], assumed [[Definition:Interest rate | interest rates]], and expense loads. A pure life annuity, sometimes called a "straight life" annuity, ceases all payments upon the annuitant's death, meaning the insurer retains any remaining [[Definition:Reserve | reserve]]. This feature — where early deaths subsidize the payments to long-lived annuitants — is the essence of [[Definition:Mortality pooling | mortality pooling]] and is what allows life annuities to provide higher income per dollar of premium than systematic withdrawal strategies. Variations such as the [[Definition:Life annuity with period certain | life annuity with period certain]] or [[Definition:Joint and survivor annuity | joint and survivor annuity]] modify the pure structure to address common concerns about forfeiture at death.

🌍 From a market perspective, life annuities play a crucial role in pension systems and retirement planning across jurisdictions. In the United Kingdom, the annuity market was historically tied to compulsory annuitization of [[Definition:Pension | pension]] savings, a requirement relaxed by the pension freedoms introduced in 2015. In Japan, life annuity products are central to addressing one of the world's most rapidly aging populations, while in the United States, the growing focus on lifetime income solutions has spurred regulatory initiatives like the SECURE Act provisions encouraging annuity options within [[Definition:Defined contribution plan | defined contribution plans]]. For insurers, writing life annuities creates long-duration liabilities that require careful [[Definition:Asset-liability management (ALM) | asset-liability management]] and significant [[Definition:Capital requirement | capital]] backing, particularly under frameworks like [[Definition:Solvency II | Solvency II]] and [[Definition:China Risk Oriented Solvency System (C-ROSS) | C-ROSS]] that impose risk-sensitive charges on longevity exposure. The [[Definition:Reinsurance | reinsurance]] market for longevity risk has grown substantially as insurers seek to manage concentrations of this risk off their balance sheets.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Life annuity with period certain]]
* [[Definition:Annuity]]
* [[Definition:Longevity risk]]
* [[Definition:Immediate annuity]]
* [[Definition:Deferred annuity]]
* [[Definition:Joint and survivor annuity]]
{{Div col end}}

Definition:Life annuity - Revision history

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