An individual has a contract that will provide him with a certain amount of income for the rest of his life. What type of contract does this person have?

The individual in this scenario has an annuity contract, which is designed specifically to provide a stream of income over a specified period, often for the remainder of the individual’s life. Annuities can be structured to pay the policyholder a regular income, making them a popular choice for retirement planning.

This type of contract ensures financial stability in retirement by guaranteeing income regardless of how long the individual lives, thus managing the risk of outliving one’s savings. While life insurance policies, including term and whole life, focus on providing a death benefit to beneficiaries, annuities are productively aligned with lifelong cash flow needs, distinguishing them in purpose and function.

Understanding the fundamental role of an annuity in providing lifetime income is crucial in recognizing its benefits as a financial tool compared to other insurance products that focus primarily on survival or the payout upon death.