Annuities are unique insurance vehicles. They are considered life insurance policies, but can act like a typical life insurance policy in reverse.
(You can request information and rates for deferred annuities on this site.)
With a life insurance contract, the insurance company makes more money the longer you live. Since an annuity can pay you an income for the rest of your life, the reverse can be true.
An annuity plan has an accumulation phase and an annuitization phase. During the accumulation phase, you the policy owner, send funds to the insurance company much like you might invest in a mutual fund or add to a savings account.
Depositing money into an annuity can be a safer alternative to investing in stocks or bonds. One of the benefits of an annuity is that it can give you a lot of guarantees. (This is truer for fixed annuities than variable annuities.)
You won’t necessarily have to make regular payments. You can make one lump sum payment or make unscheduled payments over a period of time.
At some point, you may want some or all of your money and interest returned to you. (People typically do this after they have reached retirement age.) Your contract will probably give you several options when it is time to receive your funds. You can receive payments or you can get a lump sum. You can receive the payments over a specific period of time. You can receive a guaranteed amount of money each month for as long as you live. You can also receive interest only and leave your principal intact.
There may be tax advantages of waiting until you have reached retirement age, but you can receive your funds at any time.
If you decide to receive your money over a period of years, your policy will be in the annuitization phase.
What is a deferred annuity? A deferred annuity is an annuity that you put money into, but do not expect to receive any money back from the plan immediately.
This is contrasted with an immediate annuity where an individual deposits a lump sum of money and annuitizes it immediately. Often people will take funds that they have been investing in riskier vehicles and place those funds into an annuity when they are want to receive a steady income.