By Marc Gilman
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Key Takeaways
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The core idea behind an annuity — trading a lump sum for guaranteed income for life — is roughly 2,000 years old, with roots in the Roman Empire and evidence of similar arrangements even earlier.
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The word “annuity” comes from the Latin annua, meaning annual stipends, reflecting the Roman practice of paying citizens and soldiers a yearly amount in exchange for an upfront sum.
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A 3rd-century Roman jurist, Ulpian, built one of the earliest known life expectancy tables specifically to help price these contracts — an early ancestor of the actuarial tables insurers still use today.
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The practice of pricing annuities by age wasn’t invented until 1671, when Jan de Witt — the Grand Pensionary of Holland — published the first rigorous, probability-based method for it, aided by Christiaan Huygens and Johan Hudde.
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Edmond Halley, the astronomer behind the comet, built one of history’s first true life tables in 1693 specifically to help price annuities accurately by age.
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Tontines, invented in 1653, pooled annuity payments among a group and grew each survivor’s share as others died — a design so exploitable that governments eventually banned them.
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America’s first formal annuity program traces to Philadelphia’s Presbyterian Ministers’ Fund, which began paying individual annuities in 1719 and was formally incorporated in 1759.
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The first fixed indexed annuity, Keyport Life’s “KeyIndex,” launched in February 1995 — a $21,000 initial premium that grew to $51,779 over its five-year term, kicking off a product category that didn’t exist a generation ago.
An idea far older than the modern insurance industry
It’s easy to think of annuities as a modern financial product, but the underlying idea — give someone a sum of money now in exchange for a guaranteed stream of income for as long as they live — is one of the oldest concepts in finance. Some of the earliest documented arrangements resembling annuities appear in ancient Egypt, where records suggest agreements of this kind existed among Egyptian royalty. But it’s ancient Rome where the concept takes clearer shape, and where the word itself was born.
Rome: the word, the practice, and the first life tables
The word “annuity” comes directly from the Latin annua, meaning annual stipends. Roman citizens and soldiers could pay a lump sum in exchange for a guaranteed annual payment for the rest of their lives — a structure that would be immediately recognizable to anyone looking at a single premium immediate annuity today.
Pricing that guarantee accurately requires knowing something about how long people are likely to live, and Rome produced one of history’s earliest attempts to solve that problem. In the 3rd century CE, the Roman jurist Ulpian developed a life expectancy table used to help value these annuity-like obligations under Roman law — a genuine ancestor of the mortality tables that insurance actuaries still build and refine today, nearly 1,800 years later.
The Middle Ages, war financing, and the tontine
Annuities didn’t disappear after Rome — European kings and feudal lords used them throughout the Middle Ages as a way to raise money for wars, essentially borrowing against a promise of future annual payments.
The most colorful chapter in annuity history probably belongs to the tontine, invented in 1653 by the Neapolitan banker Lorenzo Tonti. A tontine worked by pooling contributions from a group of investors, who then split an annual payout among themselves. As members of the group died, their share didn’t disappear — it was redistributed among the surviving members, so each individual payout grew larger over time. The last person alive collected the entire remaining pool.
The design was clever, and also came with an obvious, dark incentive problem: with people’s payouts growing every time a fellow member died, tontines eventually developed a reputation — fair or not — for encouraging foul play among participants. Governments in multiple countries eventually banned or heavily restricted them, and the structure faded from mainstream use, though echoes of tontine-style pooling still show up in how some modern longevity products are designed.
How annuities learned to account for age
For all their popularity, annuities sold in Europe for centuries shared a strange flaw: the price didn’t change based on the age of the person named on the contract. A payment stream sold on the life of a healthy 5-year-old cost the same as one sold on a 60-year-old, even though the odds of collecting decades of payments were obviously very different. Buyers who understood this simply chose young, healthy nominees to maximize their advantage.
The person who first solved this rigorously wasn’t a mathematician by trade, but the sitting head of the Dutch government. In 1671, Jan de Witt — Grand Pensionary of Holland, effectively its prime minister — published Value of Life Annuities in Proportion to Redeemable Annuities, proposing that annuity prices should vary by age based on actual probability of survival. De Witt had a practical motive: Holland was financing its wars partly through life annuity sales, and he believed the government was underpricing them. To build his case, he drew on the mathematics of probability from his friend Christiaan Huygens and on real mortality data for Amsterdam annuity holders compiled by Johan Hudde. It’s a rare case of a head of state making a genuine contribution to actuarial science — and grimly, one of de Witt’s last major achievements. He was killed by a mob in 1672 amid a period of political upheaval in the Dutch Republic.
The next major advance came from an unexpected direction: astronomy. In 1693, Edmond Halley — the astronomer whose name is attached to the famous comet — published a paper built around detailed birth and death records from Breslau, a city in Silesia, constructing one of history’s first rigorous life tables and demonstrating how to price a life annuity correctly at each age.
Even with de Witt’s and Halley’s work available, the actual calculations involved were tedious enough to make everyday commercial use impractical. That changed with Abraham de Moivre, a French mathematician working in London, who published Annuities Upon Lives in 1725. De Moivre developed simplified approximation formulas that made accurate, age-based annuity pricing something a broker could realistically calculate — turning a research breakthrough into a practical commercial tool.
Even then, theory and practice took generations to fully align. The English government kept selling annuities at a flat price with no age adjustment for decades after Halley’s work was published, and pricing distortions tied to selecting healthy young nominees persisted in various markets well into the 19th century.
Annuities take root in America
The story of annuities in the United States begins with a distinctly American institution: a church-based fund for the families of ministers. In 1717, the Synod of Philadelphia established what was known as the Fund for Pious Uses, a charitable pool intended to support Presbyterian ministers and their families. The fund paid its first individual annuity in 1719, to the widow of a minister named John Wilson.
It took several more decades for the arrangement to formalize into something resembling a true insurance company. In 1759, the fund was officially incorporated as the Corporation for the Relief of Poor and Distressed Presbyterian Ministers and of the Poor and Distressed Widows and Children of Presbyterian Ministers — a name as long as its mission was specific. That 1759 incorporation is widely regarded by historians as the first formal annuity (and life insurance) program in America, moving the arrangement from charity to a genuine financial contract funded by premiums.
The Great Depression and a shift in trust
For roughly the next 170 years, annuities remained a relatively niche product in America. That began to change with the Great Depression. As banks failed by the thousands in the early 1930s, insurance companies — which were subject to different regulatory structures and reserve requirements — largely avoided the same wave of collapses. That contrast mattered enormously to a public that had just watched its bank deposits evaporate, and annuities gained real appeal as a place to put money with an insurer perceived as more stable than a bank.
The modern era: variable and indexed annuities
The next major innovation didn’t arrive until 1952, when TIAA introduced CREF — the College Retirement Equities Fund — creating the first modern variable annuity. For the first time, an annuity’s value could be tied directly to stock market performance rather than a fixed guaranteed rate, aimed initially at giving university faculty a retirement vehicle that could keep pace with inflation.
More than four decades later, in February 1995, Keyport Life (working with Genesis Financial) introduced the KeyIndex annuity — the first fixed indexed annuity. The very first buyer paid a $21,000 premium; by the end of the five-year term, it had grown to $51,779. The concept caught on quickly: by the end of 1995, other insurers were offering similar products, and industry-wide FIA sales for that first year topped $130 million. Within just a few years, the number of carriers offering fixed indexed annuities grew from two to more than fifty — establishing the product category that remains one of the most widely used annuity types today.
Why the history is worth knowing
None of this is trivia for its own sake. The throughline across roughly two thousand years — from Roman soldiers to Presbyterian widows to 1990s indexed contracts — is the same basic exchange: giving up a lump sum today in return for income you can’t outlive. What’s changed over the centuries isn’t the core idea, but the sophistication of the tools used to price and structure that guarantee, from Ulpian’s life tables to the actuarial and index-crediting models carriers use now. Understanding where the structure came from can make it easier to see clearly what a modern annuity is actually doing — and isn’t — when it’s part of a retirement plan.
What To Do Next
If you’re curious how a modern annuity might fit into your own retirement picture, reach out and we’ll walk through the options together.
Questions? Call (800) 927-9326 or email
This article is for general educational and historical purposes and is not a recommendation to purchase any specific insurance or annuity product. Consult a licensed advisor to review your specific situation.
