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.

An Annuity is neither a life insurance nor a health insurance policy.  It's not a savings account or a savings certificate.  You shouldn't buy an annuity to reach short-term financial goals.

Your value in an annuity contract is the premiums you've paid, less any applicable charges,  plus interest credited.  The insurance company uses the value to figure the amount of most of the benefits that you can choose to receive from an annuity contract.  This guide explains how interest is credited as well as some typical charges and benefits of annuity contracts.

A deferred annuity has two parts or periods.  During the accumulation period, the money you put into the annuity, less any applicable charges, earns interest.  The earnings grow tax-deferred as long as you leave them in the annuity.  During the second period, called the payout period, the company pays income to you or to someone you choose.

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Before you decide to buy an annuity, you should review the contract. Terms and conditions of each annuity contract will vary. 

Ask yourself if, depending on your needs or age, this annuity is right for you.  Taking money out of an annuity may mean you must pay taxes.  Also, while it's sometimes possible to transfer the value of an older annuity into a new annuity, the new annuity may have a new schedule of charges that could mean new expenses you must pay directly or indirectly.

You should understand the long-term nature of your purchase.  Be sure you plan to keep an annuity long enough so that the charges don't take too much of the money you put in.  Be sure you understand the effect of all charges. 

If you're buying an annuity to fund an IRA or other tax-deferred retirement program, be sure that you're eligible.  Also, ask if there are any restrictions connected with the program.

Remember that the quality of service that you can expect from the company and the agent is a very important factor in your decision.

When you receive your annuity contract, READ IT CAREFULLY!!  Ask the agent and company for an explanation of anything you don't understand.  Do this before  any free look period ends.

Compare information for similar contracts from several companies.  Comparing products may help you make a better decision.

If you have a specific question or can't get answers you need from the agent or company, contact your state insurance department.

Appendix: Fixed Equity Indexed Annuities   

NAIC.org (National Association of Insurance Commissioners)