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.

Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.