Annuity Basics

Questions to Ask Before You Buy an Annuity

What is an Annuity?

An annuity is a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid. Annuities are often bought for future retirement income.

Ask Yourself:

You should think about what your goals are for the money you may put into the annuity, as well as how much risk you are willing to take.

• Do I need retirement income in addition to Social Security, pension, savings and any other income or investment sources? Will I need that additional income only for myself or for myself and someone else?
• When do I expect to need income payments in the future? How long can I leave money in the annuity and does the annuity allow me to take out money when I need it?
• Is this a single premium or multiple premium contract?
• Do I want a fixed annuity with a guaranteed interest rate and little or no risk of losing the principal? Or do I want a variable annuity with the potential for higher earnings that are not guaranteed with the possibility that I may risk losing my money?
• Can I get a partial withdrawal without paying surrender or other charges and is there a death benefit

 

Ask Your Sales Agent Or Broker:

• Is this a suitable investment for me? As of June 2023, insurance producers must meet new enhanced standards of conduct to ensure annuity suitability. This includes disclosing their role in the transaction, their compensation, and any material conflicts of interest; and documenting, in writing, any recommendation to purchase, exchange or replace an annuity product and the justification for such recommendation.
• Is this a fixed annuity or a variable annuity? (see additional specific questions below for fixed or variable annuities)
• Is this a single-premium or multiple-premium contract?
• Are there withdrawal or surrender charges or penalties if I want to end my contract early and take out all my money? How are these charges or penalties determined?
• Can I get a partial withdrawal without paying surrender or other charges or losing interest?
• Does my annuity waive withdrawal charges for reasons such as confinement in a nursing home or terminal illness?
• What other charges, if any, may be deducted from my annuity?
• How can I find out whether my tax liabilities will be affected by buying an annuity?
• What benefit rate is used to determine income payments?
• Is there a death benefit? How is it determined? Can it change?
• What income payment options are offered? Once I choose a payment option, can I change it later?
• Is my annuity a multiple-benefit annuity, and if so, what other benefits (e.g., payments in case I am confined on a permanent basis to a nursing home) are available?
• How will the accumulated value, or the way interest is credited, change if I surrender the annuity or select a longer or shorter payout period?

 

For fixed annuities:

• What is the initial interest rate?
• Is the initial interest rate guaranteed for some time?
• Does the initial interest rate include a bonus rate?
• What is the guaranteed minimum interest rate?
• What are the current interest rates for annuities that are in their second or higher year?

For variable annuities: 

• What choices of investments are available, and what are the risks of each of these investments?
• How frequently can I change my investment choices, and what fees are charged to make these changes?
• Is there any guaranteed minimum payout if I make all my premium payments?

 

 

Review Your Contract Carefully!

As with any insurance product, always review the contract and be sure you understand the terms and conditions, as these will vary from contract to contract. Ask the agent and/or company for an explanation of anything you do not understand. Do this before any free look period ends. This period gives you a set number of days to look at the annuity contract after you buy it. If you decide during that time that you do not want the annuity, you can return the contract and get all your money back.