Definition of Life annuity

The life annuity (also known as a single-payment annuity) is a financial instrument that allows for a seller (issuer), typically a financial institution such as a life insurance company, to provide a series of future payments to a buyer (annuitant) for a known sum with a net present value; the payment stream has an unknown duration based principally upon the life expectancy of the annuitant. Generally, such an instrument stops payment at the death of the annuitant. However, it is possible to structure such a contract so that the payments stop upon the death of the second of two annuitants (i.e., a joint and survivor annuity), sometimes with a reduction in the amount of the payment going forward.