What does the term "annuity" refer to in insurance?

The term "annuity" in insurance specifically refers to a financial product that provides a series of payments over time. Annuities are designed to convert a lump sum of money into a predictable stream of income, typically used by individuals during retirement to ensure they have a steady cash flow. This arrangement can offer financial security and peace of mind, as it helps policyholders manage their finances during their non-working years.

Annuities can be structured in various ways, including immediate or deferred payments, fixed or variable payout amounts, and can be tailored to meet specific financial goals. Therefore, the focus on the concept of receiving multiple payments over time captures the essence of what an annuity is fundamentally intended to do.

The other answer choices do not accurately represent what an annuity is. A one-time payment made to the insurer refers to a different type of financial transaction, typically associated with purchasing insurance. A type of life insurance with an investment component describes a different financial product, such as whole life or universal life insurance, rather than an annuity. Finally, while annuities can be used to cover living expenses during retirement, this definition is too narrow and does not encompass the broader function of an annuity as a financial product that ensures a series of