Annuities Explained

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You need to know whether your annuity pays compound or simple interest during a term.

Can you lose money?

You can lose if you cash out early – surrender charges hit 5-10% first few years. But hold it? No loss. Principal’s locked, income’s guaranteed

Annuity for heirs – cash?

How to skip kids-let grandkids collect the income? Annuities beat Trust in 2026

Are Dividends Included?

For example, the S&P 500 only considers the prices of stocks. It does not recognize any dividends paid on those stocks.

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Wealth Preservation and asset protection

“Insurance companies aren’t just being picky; they are managing mathematical certainty. When a company accepts a multi-million dollar premium, they are committing to a long-term math problem. If the client or the agent passes away shortly after the ‘ink is dry,’ it breaks the math. These limits are the guardrails that keep the company solvent for all the other policyholders.”

Guaranteed Results

Restricted Beneficiary payout options

Guaranteed Legacy Income

Some companies have a form to restrict the payout of part or all of a Beneficiary’s interest after a death triggering a death benefit claim as defined in the Contract.

Complete a separate form for each Beneficiary

Annuity

NAIC Buyers Guide

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 most often bought for future retirement income. Only an annuity can pay an income that can be guaranteed to last as long as you live.

Kinds of Annuities?
This guide explains major differences in different kinds of annuities to help you understand how each might meet your needs. But look at the specific terms of an individual contract you’re considering and the disclosure document you receive

Single Premium or Multiple Premium
You pay the insurance company only one payment for a single premium annuity. You make a series of payments for a multiple premium annuity. There are two kinds of multiple premium annuities. One kind is a flexible premium contract.

Immediate or Deferred

With an immediate annuity, income payments start no later than one year after you pay the premium. You usually pay for an immediate annuity with one payment. The income payments from a deferred annuity often start many years later. Deferred annuities have an accumulation period, which is the time between when you start paying premiums and when income payments start

Fixed or Variable – Fixed
During the accumulation period of a fixed deferred annuity, your money (less any applicable charges) earns interest at rates set by the insurance company or in a way spelled out in the annuity contract. The company guarantees that it will pay no less than a minimum rate of interest. During the payout period, the amount of each income payment to you is generally set when the payments start and will not change.

Fixed or Variable – Variable
During the accumulation period of a variable annuity, the insurance company puts your premiums (less any applicable charges) into a separate account. You decide how the company will invest those premiums, depending on how much risk you want to take. You may put your premium into a stock, bond or other account, with no guarantees, or into a fixed account, with a minimum guaranteed interest.

Frequently Asked Questions

Questions You Should Ask Your Agent

What are the surrender charges or penalties if I want to end my contract early and take out all of my money? Can I get a partial withdrawal without paying charges or losing interest? Does my contract have vesting? If so, what is the rate of vesting?

What About the Tax Treatment of Annuities?

Under current federal law, annuities receive special tax treatment. Income tax on annuities is deferred, which means you aren’t taxed on the interest your money earns while it stays in the annuity. Tax-deferred accumulation isn’t the same as tax-free accumulation. An advantage of tax deferral is that the tax bracket you’re in when you receive annuity income payments may be lower than the one you’re in during the accumulation period. You’ll also be earning interest on the amount you would have paid in taxes during the accumulation period. Most states’ tax laws on annuities follow the federal law.

What Is a “Free Look” Provision?

Many states have laws which give you a set number of days to look at the annuity contract after you buy it. If you decide during that time that you don’t want the annuity, you can return the contract and get all your money back. This is often referred to as a free look or right to return period. The free look period should be prominently stated in your contract. Be sure to read your contract carefully during the free look period.

What Are Indexed Annuities?

An indexed annuity is a fixed annuity, either immediate or deferred, that earns interest or provides benefits that are linked to an external equity reference or an equity index. The value of the index might be tied to a stock or other equity index. One of the most commonly used indices is Standard & Poor’s 500 Composite Stock Price Index (the S&P 500)1, which is an equity index

How Are They Different from Other Fixed Annuities?

An indexed annuity is different from other fixed annuities because of the way it credits interest to your annuity’s value. Some fixed annuities only credit interest calculated at a rate set in the contract. Other fixed annuities also credit interest at rates set from time to time by the insurance company. Equity-indexed annuities credit interest using a formula based on changes in the index to which the annuity is linked. The formula decides how the additional interest, if any, is calculated and credited. How much additional interest you get and when you get it depends on the features of your particular annuity

What Are Some Indexed Annuity Contract Features?

Two features that have the greatest effect on the amount of additional interest that may be credited to a Fixed indexed annuity are the indexing method and the participation rate. It is important to understand the features and how they work together.

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