An annuity is a contract between an individual and an insurance company or financial institution where the individual pays a lump sum or periodic contributions in exchange for receiving a predetermined set of future payments. Annuities can be structured in various ways; the two primary types are immediate and deferred annuities. An immediate annuity starts payments soon after the initial investment is made, while a deferred annuity begins payments at a later date. There are also fixed annuities, which guarantee a certain payout, and variable annuities, which can fluctuate based on the performance of underlying investment options.