General education, not personalized advice. Confirm current rules at the sources below.
Insurance transactions are separate from investment advisory services and may generate commissions and conflicts of interest. Purchasing insurance is not required to receive advisory services. Insurance disclosures.
What an annuity is
An annuity is a contract with an insurance company. You pay a premium or series of premiums, and the insurer agrees to terms such as future payments. The details depend entirely on the contract.
What they may provide
Depending on the type, an annuity may offer lifetime income, a death benefit or tax-deferred growth. Not every annuity offers each feature, and add-on features commonly cost extra.
Costs and restrictions
Possible costs include mortality and expense charges, administrative fees, investment fees in variable contracts and rider fees. Many contracts have surrender charges if you withdraw early, and withdrawals before a certain age can bring tax consequences.
Liquidity may be limited. Money placed in an annuity may be hard to reach without cost.
Who stands behind it
Guarantees are backed by the claims-paying ability of the issuing insurer, not by the federal government. Annuities are not FDIC insured, not bank deposits and, depending on type, may lose value.
Contract-specific benefits
Annuities are insurance contracts. Guarantees, including guaranteed lifetime income benefits where available, are subject to the claims-paying ability of the issuing insurance company. Product features, fees, withdrawal restrictions, and surrender charges vary by contract.
An optional income-benefit base is not necessarily the account value or cash surrender value. Any lifetime payment feature operates under its contract conditions and does not guarantee investment returns.
Questions to ask
What are all the fees? What is the surrender schedule? What happens if I need the money? How is the insurer rated? Who is paid if I buy?