Annuity Principal

Annuity Principal

The contributions one makes to an annuity. This may be a lump sum payment, but it is usually a series of contributions made on a monthly basis. The annuity principal is invested on behalf of the annuitant and forms the basis of the payments he/she begins to receive after the first withdrawal.

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Annuity principal. The annuity principal is the sum of money you use to buy an annuity and the base on which annuity earnings accumulate.

If you're buying a deferred annuity, you may make a one-time -- or single premium -- purchase, or you may build your annuity principal with a series of regular or intermittent payments.

For example, if you own an annuity in an employer-sponsored retirement plan, you add to your principal each time you defer some of your income into your account -- typically every time you're paid.

When you buy an immediate annuity, you commit your annuity principal as a lump sum, and that amount is one of the key factors that determines the amount of your annuity income.