An annuity can be defined as a financial investment in a structured financial product that pays out a fixed amount of money to the individual covered by the contract after a certain period of time. Annuity payments vary with the interest rate and the term of the contract. The annuitant (you) usually receives a lump sum payment when you sell your annuity to the insurer or when you reach a certain age. With annuities there are two main types: the deferred annuity and the indexed annuity

The present value of an annuity simply is the present value of future annuity payments, given at a certain rate of return, from an annuity to the individual covered by the contract. The higher the annuity discount rate, the greater the present value of your annuity. There are several different discount rates and terms including term discount, guaranteed annuity, indexed annuity and deferred annuity. These terms are used to describe the way that the money is invested and how it is made available to the person receiving the payment today or within a certain period of time.

Deferred annuity means the annuity payments are received now but will not be paid out until a later date. Future payments means that the annuitant is receiving fixed future payments even if they did not receive the lump sum amount in the past. You can also choose to receive both kinds of payments.

In a structured settlement the annuitant is receiving payments from a structured settlement company instead of a lump sum. If you are looking for a way to reduce your taxes when it comes to receiving money from your annuity then by purchasing the annuity you can easily do this. This works best with whole life annuities where the tax rate is already low. Buying a structured settlement from a purchasing company will also help you avoid paying estate taxes.

When purchasing annuity, you should know that a discount rate is not included in the calculation. A discount rate is a fee that is charged for the transaction. Before buying annuity you should know what the present value is and what the annuity’s interest rate will be. When you purchase an annuity you will be given the present value at that date. The annuity’s interest rate is not included in this calculation since the money is not received right then.

The present value is what you would receive after expenses like taxes and fees are taken out. The total present value at the end of the term will give you the amount you would have received upon retirement. If you purchase a tax-deferred annuity the future payments will be received as tax-deferred income and therefore you will be taxed less upon retirement. If you want to calculate the present value and are unsure how much your future payments will be you can call an accredited financial advisor who specializes in financial investments.