An annuity is an investment contract between a person and an insurance or financial services company whereby the person pays periodic cash installments to the company in exchange for guaranteed monetary disbursements in the future. The two basic types of annuities are the fixed annuity, in which money deposited compounds at a fixed rate over the period of the annuity, and a variable annuity, which provides for multifaceted investment of contributed funds in accounts of the annuity owner's choosing. Like many other investments, annuities can be bought for others or transferred as a gift. You can buy an annuity for another person by designating your desire to do so on the application.
Step 1
Choose the type of annuity you want to buy and the company from which you want to buy it. There are several variations of fixed and variable annuities, and rates of return can change from one company to the next. Consult an independent financial adviser, i.e., one who is not affiliated with any particular company, if you are unsure which type of annuity to buy or where to buy it. Inform the adviser of your financial goals and she will steer you toward the company and product that best fits your needs.
Step 2
Complete the application for your annuity and provide all required information. In the section referring to the "annuitant," fill out the name, address and Social Security number of the person for whom you are buying the annuity. The "annuitant" is the person who is legally entitled to receive the benefits of an annuity.
Step 3
Submit the initial investment amount required by the annuity company. If there is no minimum amount, submit an amount that you think will best accomplish your financial goals. Your financial adviser will help you decide how much to initially invest.
Step 4
Make all regular premium payments. The amount of your premium will vary depending on the type of annuity you buy.
Tips and Warnings
- As the owner of the annuity, you can change the annuitant at any time, even if you listed someone else as the annuitant.
- Transferring an annuity through sale or gift, as well as taking out money before maturity on certain annuities carries tax consequences that can become quite expensive. Consult a financial adviser or accountant before making such a transaction.
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