Correcting my limitless lack of knowledge, one post at a time.
Monday, November 1, 2010
My mom had a small life insurance policy, which was mainly to cover what I have since learned is the oldest reason for insurance of all: the costs involved in death and burial. My sister has been the main one helping her keep track of her finances, so I haven't really been too involved in that end of things. Thank God, one would have every reason to add, as it came to my attention during our discussion with her lawyer after she died that I didn't really have any idea what an annuity was, not even when it was used in a sentence. Sure, I get the annu- prefix as having to do with 'year', and certainly it has to do with money, but is it payment in, or payment out, or what exactly?
Well, it's been far too long since I delved into the abysmal depths of my financial ignorance, so pick up your miner's lantern and come with me...
Okay, maybe in this case, we'd better start with the etymology. Annuity means "yearly allowance", and has that usual pedigree of tracing back through Old French (annuité) , Middle Latin (annuitatem) , and back to the Latin annus, or "year". The Online Etymology Dictionary has it that the word acquired the meaning of an investment that entitled the investor to equal, annual payments in the 1670s. So far, so good, right?
Over time, the word annuity has shifted from meaning the money paid out to the actual contract between the individual and the insurance company. By this contract a person pays money to the insurance company, which is invested and paid back in regular payments. In a fixed annuity, these payments are all the same interest rate, while in a variable annuity, the payments are linked to the stock market, so will be up when the market is up and down when the market is down. The real disadvantage with any annuity, though, is that there is a substantial penalty for withdrawing the money prematurely, which in the U.S. would mean before the age of 59 and a half. This is why it can make sense as a retirement strategy, and is not really a young person's best investment choice.
It's all actually rather interesting, but maybe not so much as to go on and on about here. There are some easy explanations in this article on Annuities for Dummies which will explain pretty much anything you want to know about annuities far better than I could. To round this out, I'll just add that any money left at the time of the "annuitant's" death is paid out in a lump sum to the beneficieries designated. This is called a "death benefit", which is a very dubious term at best, to my way of thinking.
But let's close out on a more positive note, namely with my new favorite, Anatoly Liberman, and his blog post Year In, Year Out, which does indeed have a passing reference to annuity. Here is the relevant passage:
We seem to know more about the derivation of the word year. Even though speakers of the Germanic languages counted years by winters, they, like probably all people living in areas with moderate climate, identified the beginning of the year with spring. The most ancient meaning of year has been preserved by several of this word’s cognates, for instance, Slavic iara “spring,” as well as Classical Greek hora “time, season” and especially “spring” (the initial h of hora goes back to i, pronounced like y in Engl. year). Latin borrowed the Greek word. Later, the Romans’ hora, via French, reached English and became hour; horologe and horoscope are also loans from French. (It is a curious fact that in none of those French or English words was h- ever sounded; the letter h embellishes Engl. hour and Fr. heure in deference to their Latin etymon. Middle English did well with ure and oure, and Old French had ore and eure. The less spelling masters bother about etymology, the better.) Germanic cognates of Latin annus “year” have been recorded, but not in English. Annual, annuity, superannuated, perennial, and biennial are straight from French or Latin. Both year and annus seem to have the same root as the Indo-European verb for “go.” Year “spring” was a name marking the arrival of a new cycle of the ever-revolving season.
I suppose the thing to take note of here is that a year, in any language, will go as fast.