What is Annuity Table?

As per the annuity table definition, it helps you calculate the present value of your annuity payments. It is one of the most common tools used for determining the total amount of annuity that is due to be paid to the annuitant and other recipients. The annuity table is mostly used by Insurance companies, accountants, and other professionals. You could also calculate it by using the financial calculator and other such apps built for the same purpose.

An annuity can be the multiple payments paid over a specific period or a lump-sum payment. Either way, it is important to calculate the worth of annuity in order to make informed decisions.

Annuity Table Formula

The annuity rate is to be multiplied by the interest rate in order to achieve the present value of the annuity. Now, a few factors are to be taken into consideration when the annuity table is created. This includes -

• discount rate
• total annuity payment, and
• number of years for which the annuity is to be paid to the annuitant

For example - INR 1,00,000 annuity could be paid in the next 13 years with an interest of 2%. These all factors are to be included in the annuity table for the calculation of the present value of the annuity.

Example

If you see it from the time value of money concept, then getting the annuity payment in the lump sum is far better than getting the small installments in the future. In other words, getting INR 1,00,000 today is comparatively better than dividing the money into the next 5 years. That’s because the sooner you get the money, the quicker you will be able to earn interest on it.

There are many uses of annuity tables, and the most common applications are the insurance premium and lottery.

Suppose your friend wins a lottery worth INR 25,00,000. Now, he can either get all the money in a lump sum today or sign a deal where the payment will be transferred to his account in small installments over a specific period. Lottery winnings, however, are not that common. In addition to that, annuity payments consist of investments that offer a stable Income to people during their retirement.

The formula for calculating the ordinary annuity is quite complex, and that’s the reason why it is often avoided. Instead of using any sort of annuity formula, individuals can use the annuity table to calculate the Factor. This could be measured by the number of periods the annuity has to be paid as well as the interest rate. The factor you receive from the calculation must be multiplied by the total annuity amount to obtain the ordinary annuity.

To put it in simple terms, the annuity table could be defined as the simplest possible way to figure out the total worth of the annuity payments the recipient or the annuitant is supposed to receive over a specific period. The table is quite useful when it comes to making certain decisions.