The history of everything is always a matter of importance. For you to understand it better and more deeply, you have to follow it through the paths it has travelled from the day its journey began and up to the day it crossed your own path. So here is a history of annuity to help you understand.
The Roman Times
During the Roman Period, Roman citizens would make a one-time payment to the Roman emperor. In exchange for payment of the citizens, the emperor gives lifetime payments to them once a year. This transaction is made under the contract known as “annua,” a Latin word that means “annual stipends.”
The 17th Century
In the year 1653, a Neapolitan banker named Lorenzo Tonti developed a method for raising money in France. The method was called tontine after his last name. In this savings structure, the clients would purchase shares from a particular company. Each of the shareholders will be given their respective shares from the income generated from the capital investment. As shareholders passes away, their income was spread among the surviving partners. The last shareholder or partner alive would collect all the benefits.
The use of tontines spread to Britain and the United States where governments used them to finance public works projects. The practice of tontine, however, was eventually banned because it created an incentive for shareholders to get rid of their partners so that they would have a higher payout.
The tontine is considered as an early predecessor to the deferred annuity and the immediate annuity. However, fortunately, the income from these two popular investments vehicles would not be shared by other investors in your chosen insurance company. In case you die before the full account value of your annuity plan is given to you, the income will be automatically transferred to your beneficiaries.
The 18th Century
Annuities made their first mark in the United States of America in the 18th century. In Pennsylvania, a company designed to benefit Presbyterian ministers and their families was founded in 1759. The ministers would be given lifetime payments in exchange of the funds that they had contributed to the company.
The 20th Century
It was only in the year 1912 that the public of America were offered annuities. The first company to offer annuities to the general public was The Pennsylvania Company for Insurance on Lives and Granting Annuities.
The popularity of annuities as an investment vehicle started to grow in the late 1930s when individuals were encouraged to avail of products sold by insurance companies due to concerns about the fluctuating condition of the financial markets. This was a period of great depression in America. Because of the recession, Americas were prompted to secure their future. The insurance companies were seen as stable institutions that could satisfy the rate of returns specified in annuity contracts. Annuities greatly benefited from the “saving for a rainy day” perception that spread during the 1930s.
In the year 1952, the first variable annuity was created. Over the years, several features were added to annuities in order to give a wider range of options to consumers. Different types of annuities were created to fit the lifestyle, needs, and goals of every consumer. Some of the added features were enhanced premium rates, maturity periods that range from a year to several years and guaranteed death benefits given to the beneficiaries of the annuity owner in case he/she passed away unexpectedly.
The Annuities Today
Annuity sales are estimated to be more than $200 billion today. They are one of the most popular investment tools, especially for those who are preparing for their retirement.
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