What is an annuity often referred to as?

An annuity is often referred to as a contract sold by insurance companies because it is essentially a financial product designed to provide a stream of income, typically during retirement. When an individual purchases an annuity, they enter into an agreement with an insurance company, which, in return for a lump-sum payment or series of payments, guarantees regular disbursements over a specified period or for the lifetime of the annuitant.

This structure makes it a unique financial tool focused on income generation rather than a typical investment or collection of assets. Annuities are distinct from other financial products like investment funds, loans, or government bonds, which serve different purposes in personal finance. The relationship and obligations defined within the annuity contract are central to its function — ensuring that the policyholder receives payments as promised, making it fundamentally an insurance-based financial instrument.