What occurs when an annuity is annuitized?

When an annuity is annuitized, it means that the contract enters a phase where the accumulated value of the annuity is converted into a stream of income payments to the annuitant. This is the primary purpose of annuitization: to provide the holder with periodic benefit payments that can last for a specified period or even for the remainder of their life, depending on the terms of the annuity.

During this process, the initial investment, or the accumulation phase, transitions into the distribution phase, where the annuitant starts receiving financial benefits. This ensures that the funds accumulated in the annuity are effectively utilized to support the annuitant's financial needs, often during retirement.

The concept of annuitization is crucial in understanding how annuities function, as it provides a reliable source of income, which can be essential for individuals planning for their financial future.