An annuity is the ideal life planning tool for a senior citizen that comes up to him or her with all the advantages near the end of his life. It is a retirement planning tool and has two basic phases:

The accumulation phase and

(d) The annuitization phase.

It is during the accumulation phase that an annuity buyer has to make the payments. In an accumulation phase, a person invests money in an insurance company, a senior settlement plan or an investment company for a considerable period of time. The amount might vary from one investment company to the other, but it is invested in a lump sum. Eventually with the passage of time it earns a rate of return.

In the other phase, the annuitization phase, the person who had been investing money in the accumulation phase has the right to withdraw payments in a regular basis, whether it is in a monthly or annual basis. The person who buys such an annuity plan to secure their post-retirement phase is called the annuity buyer. This annuity buyer has to pay what are called basis points. These are basically the fees for the annuities. The annuity fees or the basis points show a percentage of ones investment. Another important thing regarding the annuity buyers payments is the Mortality and expense (M&E).

Mortality and expense are those which are charged by the various insurance companies and agencies in order to provide an annuity buyer with a lifetime income. This fee is also charged to the beneficiaries with a death benefit of the annuity buyer.

There are three types of annuities that require three types of payment modes. They are:

(a) Fixed annuity, which incorporates the ""mortality and expense"" (or M&E) fee, the sub account fee, and the annual contract maintenance charge. The sub account fee covers the cost of ones annuity investment account management. However, the annual fee is quite flatly charged and is on an average $30.

(b) Variable annuity

(c) Equity-indexed annuity

There are no up-front fees or charges for the latter two categories.