Answering the question,
To completely answer the question, “what is an annuity”, it would be necessary to write a book and not an article. Annuities are possibly one of the most misunderstood investment vehicles. However the purpose here is to give you some direction towards doing the necessary research to understand the basics so that when you talk to the professionals you will have a much great
In the their simplest form, annuities can be described as guaranteed agreements which pay back money with interest over a set period of time. As an investment they offer some advantages over the usual stock and bond investments in that the pay back is guaranteed by an insurance company or some other licensed organization.
However, to the amateur investor there may not seem to be any simple annuity. Consider for a moment the terms you might discover as you do your research. Annuities, fixed rate annuities, variable immediate annuities, deferred annuities, equity indexed annuities, annuity settlement options, annuity risk , joint and survivor annuities. At first you may feel as though you are searching for information in a foreign language.
The Securities And Exchange Commission has a web site with good informative free information regarding snnuities. On their site they have this description of a variable annuity:
A variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments. 
Do Basic Research To Answer The Question, “What Is An Annuity"
Fortunately finding the information you need to make an informed, intelligent financial decision need not be overwhelming. There are two types of annuities you are most likely to be involved with. A retirement annuity or an annuity you have received due to an injury or other lawsuit in which you have prevailed.
These instruments will guarantee that you will receive a certain amount of money over a set time period usually about 10 or 20 years. In some cases you may receive a partial upfront bulk payment with the remainder in payments. The retirement annuity is one you will purchase with a cash investment for the purpose of providing income after your working years have finished. These instruments accrue interest and have certain tax advantages.
The decision to purchase such an investment would normally only be made after considering all of your other possible retirement funding options. There are many options available when structuring the agreement such as how will the funds be dispersed in case of your untimely death. You could include the option to make your wife the beneficiary and this is a normal choice because women tend to out live their husbands.
You may decide that you really won't need the funds from this investment for retirement and choose to make your children the beneficiaries. You may find that the funds would be needed for total nursing home care in which case there are also tax advantages. While the basis of these instruments is an agreement that you will not have access to the accrued funds except for the regular payments there are occasions where some or all of the funds are available.
Should You Sell Your Annuity?
You may be able to withdraw up to 10% a year with out tax penalties. You could also sell all or part of the funds to companies or organizations that specialize in these types of purchases. If your payments were scheduled over a 20 year time frame you could sell two years of those payments for example and then began to receive payments after that time frame has expired.
In any sale of part or all of your annuity you will pay large fees and be liable for tax penalties. However in some situations such as illness, potential mortgage foreclosures or other emergencies, a sale might be a good financial decision.
As mentioned above you should do some preliminary research to understand the basic terms you will encounter and then contact a few annuity providers to get quotes regarding your purchase or sale of an agreement. Once you have that information you would be well advised to contact a trusted professional financial planner, insurance salesperson or an attorney especially if there are large sums involved.
While annuities have served many investors well over the years the complexity of these agreements does present an opportunity for scams or misinformation. Answering the question, “what is an annuity” is the proper place to start before moving very far along in the decision making process.