Find out how the annuity formula works and how to calculate present and future value. Get a simple breakdown of key concepts.

Oscar Wong / Getty Images An annuity can be an appropriate addition to a sound financial plan. But, it's important to understand how they work and, more importantly, the payout options.

MoMo Productions / Getty Images An annuity is a contract between a buyer and an insurance company that provides the buyer with a regular series of payments in return for a lump-sum payment.

If the annuity's net present value is less than the limits, your payouts would continue as they have been. If its value is more, the payouts would continue up to the limits and you could get ...