Funding Agreement

What Does Funding Agreement Mean?

A funding agreement is an investment vehicle in which an individual pays a lump sum to the seller in exchange for a fixed return. Funding agreements are generally considered low-risk investments, which is why they are commonly purchased by pensions, mutual funds, and other similar entities. These contracts are typically issued by life insurance companies, which use the deposits to back their long-term obligations.

Insuranceopedia Explains Funding Agreement

Funding agreements are essentially a way for investors to earn money without taking on significant risks. They are somewhat similar to certificates of deposit (CDs) and annuities. However, because funding agreements are typically low-risk and designed to provide steady, safe returns, they tend to offer only modest investment gains. As a result, they are often used more for preserving wealth than for seeking substantial growth. Investors who want predictable income in retirement sometimes look at funding agreements alongside fixed annuity products, which also pay a guaranteed return but typically run over a longer period.