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What are lump sums and annuities? Lotto Terms Series Part 5 – December 8th 2011

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Lottery players who are lucky enough to land an enormous jackpot such as the $67 million USA Powerball top payout expected this Saturday (December 10th) may not know about the difference between lump sums and annuities.

Those who have read about big winners in the news may have heard these terms bandied about but they may not be entirely sure as to what they mean, but in short, they identify how the lotto winner receives his or her payment.

Lump sum

A lump sum is a popular way of getting hold of lottery winnings because this means the amount a person is entitled to – in some cases after tax – is then given to the individual or deposited into their bank account as a cash payment all in one go, rather than being released in instalments over a number of years.

Annuity

An annuity is a jackpot win that is collected in instalments over a number of years rather than in one go.

Lottery games sometimes operate with annuities to create higher jackpots because this means they can offer bigger prizes than their immediate cash holdings will allow.

An annuity-backed jackpot winner will collect their prize money in instalments over a period of several years – usually 20 or 25 years.