You sign a contract and write a lump-sum check (or transfer monies from another institution) to an insurance company. The insurer invests the money for you. Your money goes to work for you either through a fixed interest account or other various index allocations. Then, as time goes by, you can either convert your annuity contract to an income stream or surrender the policy for its contract value. Your annuity generally grows tax-deferred, the principal is generally guaranteed depending on your contract provisions, and can provide a fixed income stream if you so desire.