Individual Retirement Annuities are special insurance contracts designed to conform with the requirements of IRAs. These take the form of individual annuities, (or in some cases joint last survivor annuities covering the participant and spouse) and endowment contracts.  Endowment contracts essentially are annuities that also provides life insurance protection.

Individual retirement annuities must meet the following requirements:

the owner's entire interest must be nonforfeitable (i.e., fully vested),
the contract must not be transferable by the owner and may not be used as collateral for a loan,
the annual premiums may not be fixed and must not exceed the annual IRA contribution limit,
any refund of premiums must be applied toward the payment of future premiums or the purchase of additional benefits,
the account balance must begin to be distributed when the employee reaches age 70½.

In short, these rules simply provide equal treatment between Individual Retirement Annuities offered by insurance companies and traditional Individual Retirement Accounts offered by banks, brokers and other financial institutions.  A participation certificate in a group annuity contract is treated as an Individual Retirement Annuity if the group contract meets the above rules and there is a separate accounting of the benefits allocable to each participant under the group contract.

Endowment contracts

Endowment contracts are Individual Retirement Annuities that offer life insurance protection.  The tax code imposes additional requirements on endowment contracts.  An endowment contract must:

mature no later than the tax year in which the insured reaches age 70½,
prohibit an increase in premiums over the contract term,
provide a cash value at maturity that is no less than the death benefit at any time before maturity.
provide a death benefit, at some time before maturity, that exceeds the greater of the cash value or the premiums paid,
prohibit the life insurance element from increasing over the term of the contract, unless the increase is merely because of the purchase of additional benefits,
prohibit any insurance other than (a) life insurance or (b) waiver of premiums in case of disability,
provide for a cash value, and
be for the exclusive benefit of the individual or beneficiaries.

Endowment contracts are the one exception to the rule that prohibits life insurance within an IRA.  Although endowment contracts provide life insurance coverage, the cost of that protection is not tax deductible.  Holders of endowment contracts must allocate their contributions into "insurance" and "non-insurance" segments. The non-insurance portion may be deductible.  The cost of the life insurance protection under a qualified endowment contract is not.