An annuity can be defined as an investment wherein a periodic payment is made to the beneficiary. The amount of payment usually varies with each annuity contract but it can range anywhere from a fixed amount to periodic payment amounts. Payments made on annuities are tax-exempt and are usually received before taxes are taken out. It is best to consult a financial consultant when considering an annuity as there are several factors to consider before investing. These include current interest rates, life expectancy of the person paying and his/her total income in the future.

When investing in annuities, one should first determine the Present Value of the annuity which is the future worth of the lump-sum payment received. The present value of annuity can also be determined by using different terms for computing this amount such as discounted annuity calculator or discounted stock-trading annuity calculator. The present value today of an annuity is basically the amount of future payments currently received, discounted to a certain amount to give a specific rate of return. The higher the discount rate, generally the better value of the annuity for the investor. If you are considering investments in annuities you should seek advice from a financial consultant as he/she may be able to provide a more precise solution to your queries. He/she will be able to provide a review on the annuity you are considering and give you a fair idea whether to opt for the lump-sum payment or the indexed annuity plans.

There are two basic types of annuities; those that pay a regular income during the lifetime of the annuitant and those that pay an annuity upon death. A regular annuity usually pays a guaranteed interest rate and can be invested in virtually any financial instrument. However, these types of annuities have restrictions placed on them that should be seriously considered before investing. In case of a guaranteed annuity payment, the value at the end of a specific period of time may not necessarily be the same as the value at the end of that period, depending on the performance of investments. This is where an interest rate restriction enters into play; if you want to make money beyond a particular period, you may have to forfeit some of your initial amount invested.

There are also three types of deferred annuities that are common with the whole life and variable universal life annuities. With a whole life plan, as mentioned above, there is a guaranteed minimum value and hence there is no need to pay any distribution until the entire value has been achieved. Another example is when you purchase a variable universal life insurance policy, you get a variable premium that is based on the performance of the market. It is possible to surrender the policy if the market falls – if you surrender the policy before the maturity date, then you will get back only the premiums accumulated. Thus, you would have actually received n payments instead of n cash.

The lump sum distribution in a variable universal life annuity or a whole life annuity is dependent on the investment return that you have received over the time frame specified in the plan. If the plan provides for a guarantee minimum amount, say ten thousand dollars, you receive the entire lump sum. If the plan provides for a time value, say five years, then the value is given once per year. If the policy provides for a compound annual percentage, say once per year, then the value is given once per annum.

Basically, the question is: how much does the present value or the actual value of an annuity get at the end of the day? The answer is not known at the moment of purchase. It may be higher or lower than the payment that you will receive. If the sales price is higher than the current value, the future payments that you make will be higher. However, if the sales price is lower than the current value, then you will make the payments lower.