What is an annuity?

An annuity refers specifically to a financial product that involves a series of payments made over a predetermined period of time. This structure is often used in retirement planning, life insurance payouts, or to spread out a tax liability. Annuities can be set up to provide regular payments for a specific term, such as a fixed number of years, or for the lifetime of the annuitant.

In understanding why this definition is appropriate, it's important to recognize that annuities can be classified into various types, such as fixed, variable, immediate, or deferred. Each type shares the common characteristic of providing a stream of income over time, which is particularly beneficial for individuals looking to manage their cash flow in retirement or ensure financial security.

The other answer choices describe concepts that do not align with the definition of an annuity. A one-time payment for services refers to a transaction that does not involve ongoing payments. A lump sum investment return refers to a single payment or return on an investment, not a series of payments. A type of insurance policy does not specifically denote the nature of annuities, as while annuities can be part of insurance products, they are distinct financial tools designed primarily for income generation.