Annuities as retirement income

Sections 181 and 182 of the Amended Insurance Code provide that contracts of annuities shall be considered a life insurance contract. Articles 2021 to 2027 of the New Civil Code govern life annuities in general. The provisions on life annuities were included in the Spanish Civil Code of 1889 (Chapters II and IV of Title XII of Book IV). Article 2021 gives us a definition of annuity, to wit: “The aleatory contract of life annuity binds the debtor to pay an annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him at once with the burden of the income.”


Perhaps, the earliest definition of annuity was given by Sir Edward Coke, during his incumbency as Lord Chief Justice of the King’s Bench (1613-1620) in England: “A yearly payment of a certain sum of money granted to another in fee, for life or years, charging the person of the granter only.”

An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees. Annuities are created and sold by financial institutions, which accept and invest funds from individuals and then, upon annuitization, issue a stream of payments at a later point in time. The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments commence, the contract is in the annuitization phase.

An annuity is a type of policy issued by an insurance company designed to accept and grow funds, and upon annuitization, create a stream of income or payments. The money you pay in can be either a lump sum or a number of payments. Annuity is seen as a retirement tool, to provide regular income when one is already unable to work or chooses to no longer work. It addresses the fear that your assets will be exhausted as you grow old, or the fear of outliving your assets. It addresses longevity risks. It supplements whatever retirement plan has been built up through one’s employment. Annuities act as a safety net, usually for those in their senior years, by providing a guaranteed stream of income for life. So while life insurance will provide when the insured is no longer alive, annuities will provide when the insured is still alive.


The concept of annuity has been in existence since the time of the Babylonians in a form called “rent charge.” During the medieval times, the church gave land in return for annual payments of money. This “rent charge” eventually transitioned into annuities. While annuities are regulated as an insurance product, it is not an insurance policy per se. It is, therefore, a distinctive financial product. Edwin W. Kopf has described annuity as “the step-child of the insurance business.”

Examples of other form of annuities would include “pensions” from employers and Social Security benefits from government paid out upon retirement. One criticism against annuities is the high fees associated with it. There are different types of annuities. The difference pertains to the manner you put in the money and the manner payments are made to you. For example, payments may be guaranteed for life and can even cover a spouse’s life.


Dennis B. Funa is the current insurance commissioner. Funa was appointed by President Duterte as the new insurance commissioner in December 2016. E-mail:


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