policy that would cover the lost premium in the annuity. Impaired-life annuities for smokers or those with a particular illness are also available from some insurance companies. Since the life expectancy is reduced, the annual payment to the purchaser is raised. Life annuities are priced based on the probability of the annuitant surviving to receive the payments. Longevity insurance is a form of annuity that defers commencement of the payments until very late in life. A common longevity contract would be purchased at or before retirement but would not commence payments until 20 years after retirement. If the nominee dies before payments commence there is no payable benefit. This drastically reduces the cost of the annuity while still providing protection against outliving one's resources. Deferred annuity The second usage for the term annuity came into being during the 1970s. Such a contract is more properly referred to as a deferred annuity and is chiefly a vehicle for accumulating savings with a view to eventually distributing them either in the manner of an immediate annuity or as a lump-sum payment. All varieties of deferred annuities owned by individuals have one thing in common: any increase in account values is not taxed until those gains are withdrawn. This is also known as tax-deferred growth. A deferred annuity which grows by interest rate earnings alone is called a fixed deferred annuity (FA). A deferred annuity that permits allocations to stock or bond funds and for which the account value is not guaranteed to stay above the initial amount invested is called a variable annuity (VA). A new category of deferred annuity, called the fixed indexed annuity (FIA) emerged in 1995 (originally called an Equity-Indexed Annuity). Fixed indexed annuities may have features of both fixed and variable deferred annuities. The insurance company typically guarantees a minimum return for EIA. An investor can still lose money if he or she cancels (or surrenders) the policy early, before a "break even" period. An oversimplified expression of a typical FIA's rate of return might be that it is equal to a stated "participation rate" multiplied by a target stock market index's performance excluding dividends. Interest rate caps or an administrative fee may be applicable. Deferred annuities in the United States have the advantage that taxation of all capital gains and ordinary income is deferred until withdrawn. In theory, such tax-deferred compounding allows more money to be put