How Do Life Insurance Annuities Work? 
Assuming you mean non-qualified annuities that are annuitized for the life of the annuitant -LRB- whether immediate or deferred -RRB- , heres a quick explanation . The annuitized payment is guaranteed to pay life time income based on the annuitants life no matter how long the annuitant lives . Part of the annuitized payment is return of basis -LRB- tax free -RRB- amortized to life expectancy with some of the gain as well . When the basis is exhausted then the payment is entirely gain and taxable as ordinary income . 