How Do Annuities Operate? 
Annuities are fundamentally designed and manufactured in two types : immediate and deferred annuities . Immediate annuities can generate distributions , typically 5 , 10 , 20 years and for lifetime income . Deferred annuities have three basic crediting methods : interest rate , indices and separate sub accounts tied to market instruments . But earnings are not the only component , many deferred annuities are annuitized for the life of the annuitant and the insurance company adds mortality credits to the pay out . The older the annuitant is the larger the payout . 