Annuity is a financial contract under which the holder is given a fixed payment a specified interval of a time for number of years agreed upon in the contract. General annuity is a term associated with insurance companies but the idea is more related to finance. When a person gets retirements he is granted the annuity payments by some insurance company. Under this contract the insurance company provides a terminating stream of payments at regular intervals. This annuity may last for up to twenty years or even more. But it is not an endless stream like perpetuity. In insurance terms there are three types of annuities;
Fixed annuity; it offers fixed payments at regular intervals.
Indexed annuity: it depends on index in the stock market. If the index rises holder of annuity is given the profit but no loss is given if index falls.
Variable annuity: in this the amount paid to the holder varies depending on the investment option the holder chooses.
Usually, in employment contracts, the annuity payments are contributed by both employer and employee during the job of the employee. After retirement the employee is returned his investment in form of annuity.