A traditional annuity is created when an individual agrees to pay a life insurance company a premium that will be redistributed to the individual over time. The two main types of annuities are immediate annuities and deferred annuities. Immediate annuities are more common and involve an insurance company issuing regular payments either at a fixed rate or increasing as time goes on until death or a predetermined date is reached. Immediate annuities can also be integrated with other investments so that the level of return will rise or fall depending on the success of those investments. The primary purpose of this type of annuity is to take advantage of tax growth and provide retired investors with a pension later in life. Deferred annuities work in a similar manner, but are more profitable when earnings are acquired at a later date in the form of a lump-sum payment. Money in a deferred annuity is not taxed until it is withdrawn, meaning a higher total sum is growing over the years and not being taxed. Upon withdrawal, however, all interest is taxed immediately as traditional income. Choosing between annuities is a personal matter, but immediate annuities are generally utilized by families as a safety net and future source of income, while deferred annuities are more of an alternative investment.