The origin of annuities can be traced back to ancient Greece. The term “annuity” came from the Greek word “annus” meaning “year” and that refers to annual income payments. In ancient Rome citizens used to make one-time payments to a contract called "annua" in exchange for lifetime payments made once a year.

Annuities were used as fundraising devices by governments to finance their ongoing wars in 17th century Europe. These governments used to offer "tontines," that promised payments into the future to those who bought shares.

Annuities were brought in to North America in the 18th century by private insurance companies that sold insurance and annuity contracts to individuals wanting to avoid outliving their resources. In 1759 a company was formed to benefit Presbyterian ministers and their families in Pennsylvania. In return of the ministers’ contribution to fund, the company was to provide lifetime payments.

The Pennsylvania Company for Insurance on Lives and Granting Annuities in 1912 became the first American company to offer annuities to the public. Annuities grew highly popular during the late 1930s.

The most important development in the history of annuities took place in 1952. It was the inception of variable annuities that offer the investment features of separate mutual fund accounts inside the annuity with the tax-deferral available from life insurance products. Variable Annuity owners choose the type of accounts to use, often receiving modest guarantees from the issuer in exchange for the greater risks assumed.

The modern era annuities are popular long-term investment tools for supplementing retirement income. Annuities have no IRS-imposed annual contribution limits, and annuity earnings grow tax-deferred until the funds are withdrawn or paid out as income.

Annuities are very popular and hot selling financial products in America. Peter Quinton, the managing director of The Annuity Bureau reports, “The shift to investment-linked annuities has been so marked that 25,000 investment-linked annuities were sold - 9.5% of all annuity business. It's likely that the popularity of these annuity will continue to increase as they are the only at-retirement products that offer retirees a half-way house between the two extremes of purchasing a safe conventional annuity and opting for a investment-linked income drawdown plan, where the cross-subsidy system does not apply.”

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