How the Ancient Times Annuities Develop into Modern Annuities
An annuity refers to a contractual agreement between an individual and an insurance company where the insurer is obligated to pay a specific amount of money either monthly or annually. Payments by the insurer may either be made in wholesome or through installments. In the 21st century, annuities play several significant roles. Annuities are of three kinds. The first one is the fixed annuity where fixed periodic pays and a flat interest rate form the main features. The second type is the variable annuity, where several investment options play a part in the payment. In this kind of annuity, therefore, the payout varies depending on the rate of the investment option as well as the expenses. The third type of annuity is the indexed annuity where a mixture of both the insurance as well as securities combines. Annuities are important because several people use them to insure either the life of their spouses or other beneficiaries. The beneficiaries also have an opportunity to benefit in the event of death. Another advantage is that income from annuities does not attract taxation.
Annuities during the Ancient period
Annuities, however, are not a modern day phenomenon. The current day annuities trace their development from the ancient Rome. As a vital instrument of finance and investment, the annuity has existed for more than two thousand years. Indeed, an annuity is an inevitable financial tool for the twenty-first century. Virtually everything today depends on an annuity. The health schemes, the real estates, and the retirement benefits schemes all rely on the annuity. These are just some of the few benefits visible today. The truth of the matter, however, is that since time in memorial, the annuity has formed the basis of our strong political as well as economic systems throughout the world. The word annuity has its basis from ancient Rome. The earliest financial tools in Rome were always referred to as the “annua”. The word only meant the annual payments or stipends. Compared to the modern annuity, the scenario is just the same only that the jargons are different. In ancient Roman, the buyers always made payments in a lump sum. It involved a kind of agreement where the buyer could receive fixed pay annually for the rest of his life as a promise in the contract. As time went by, there was a revision of the annuity administration through the introduction of a fixed term of payments. The origin of the term annuity is a concept attributed to Ulpianis one of the most renown Roman scholars. Alpianius discovered the first actuarial table. This discovery was essential in the general economic life of the people of Rome. The annuity was even extended to compensation of service during this time, especially for the soldiers. The Alpianus table mainly brought life because it assisted greatly in the calculation of annuities related estates and the amount to beneficiaries get in various schemes. The table also found relevance in the estimation of the life expectancy of human beings. Indeed, the Alpianus table has found great importance today, especially in the insurance industry. It has become an essential tool for actuaries through with little modifications.
The idea of annuity got a lot of relevance during the middle ages. The compensation for war soldiers especially was done through annuities. It would seem unbelievable that there was little if any progress in annuities during this period. The period is also referred to as the dark period marred by a lot of wars. Many people, therefore, believe that innovation of any kind could not have taken place. It may surprise many people that in fact the idea of annuity gained considerable momentum during this period. Amidst the conflicts of this period, the leaders of these time realized that the only way to ensure that they remain in power was through the financing of the armies. The modes of payment for the expenditures of these wars, therefore, warranted very practical ideas to satisfy the needs of the soldiers. It is at this point that annuities got a lot of relevance. Several countries like England, for example, discovered that the only way of keeping control over the borders of their colonies was to ensure that its soldiers get well paid. The army officers who took control, therefore, were paid in annuities. It was at precisely this period that England came up with another financial tool known as the tontine. The discovery ensued in 1693, and the financial instrument looked similar to the annuity. Tontine was not very different from an annuity; it was just an example of the first group annuities. With the invention of Tontine, the annuities could now be inherited through a will. The amount given annually in the form of an annuity increased each year to the buyers’ beneficiaries. When each survivor passed away, the remaining number of beneficiaries got an enormous portion of the stipend as the number becomes low. The reason as to why the annuities or tontines grew so rapidly is that they bore all the characteristics of insurance. Later on, the idea of annuities took over the place of government bonds in England. The earnings from the annuities also were used by the government in coming up with major projects. Monuments and the early buildings are some of the projects undertaken through the proceeds of the annuity during the middle ages.
Towards the eighteenth century, the government started selling annuities to its citizens that guaranteed a lifetime income from the state. During this period, the use of the annuity in the financing of the government projects became very famous. The parliament was forced to come up with laws to regulate the annuity. With the creation of the first Bank of England, there were fixed returns that were taken up by the government itself. There were a lot of shares that the people had to subscribe. During the later years, however, with development, the shares came to get a new tile that is the Government certificate as opposed to merely saying shares. During this period, one most peculiar characteristic of the annuity was its ability to change depending on the economic conditions of the country. Between 1780 and 1880, many different kinds of annuities were discovered. The annuities ranged form, the consolidated annuities to the new annuities. It should, however, go unmentioned that it is during this time that the British government debts were increasing. To sustain this economic situation, the government was forced to sell the annuities at some interest rates to finance its projects. During the sixteenth century too, the introduction of the consolidated annuity that had the power of being the only sole requirement retirement benefits scheme.
The annuity during the 19th century and beyond
Several kinds of annuities were introduced in the 19th century as opposed to merely the consolidated annuity. Some of these annuities included the reduced annuity. The annuity played a very significant role towards the growth of the government as it enabled the English government to solicit money from other markets at considerably minimum interest rates. The New annuity later on followed on the raw. The essence of the new annuity was to try and reduce the rate of return paid. The reduction in the rate of return reflected in conjunction with the payments made on the Navy annuity. It is during this period that the use of annuities as a financial as well as an investment tool found its way to America. America adopted this financial instrument during the period starting with the American Revolution. It didn’t however begin with the American government but rather a corporation. One company running under the Presbyterian Church ministries mainly concerned with the assistance of the poor, children and widows came up with the annuity idea in America as a way in which earnings could reach to the beneficiaries of the former ministers. It was later during this period that one company known as the Pennsylvania began to issue out policies to the people. The development marked the first appearance of the issuance of such kind of policies in America. These policies clearly reflected the use of the annuity in the insurance industry. The beginning of the company gave rise to the starting of life insurance policies in America which operate up to today.
The annuity concept also served a great purpose during the great depression in America under the leadership of President Franklin Roosevelt. It acted as a saving tool as opposed to the banks because most banks were on the verge of collapse. From this period later on, the Insurance companies became a typical phenomenon throughout the world. Several policies such as the health insurance schemes, motor vehicle insurance schemes, and the life insurance became the order of the day. During the mid-20th century, the tax deferral as a characteristic of an annuity also was discovered. Fixed life incomes became some of the features of an annuity. These features reflect today in the modern annuities. The variable annuity was found way back in 1952 after the fixed annuity. With the losses witnessed in the financial markets, however, most people today prefer the combination of both the fixed as well as the variable annuities. The current annuity is therefore perceived as income generating as well as a financial instrument for the planning of revenue. What remains after all these discoveries, however, is a call for the exercise of a high level of professionalism and adherence to the ethical standards while dealing with the matters to do with annuities.
In conclusion, indeed, the idea of annuities is not a new one. It traces its roots back to the ancient Rome to the Roman scholar Alpianus. The Alpianus table mainly forms a basis for the calculation of annuities in the insurance companies. The use of the annuities for the payment of the war soldiers in the middle ages and the later development of the fixed and variable annuities during the 20th century all point towards development. The annuity is, therefore, an inevitable aspect of the Insurance policies today.
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