Annuity Products

Annuities 101

What are Annuities?

Annuities are an important part of retirement and investment plans, designed to help your assets grow and provide a steady stream of income when you decide to retire. An annuity is an agreement between you and an insurance company, where you accumulate your funds in a tax advantaged manner and can later receive a series of payments provided by the insurance company for a determined period of time, either a number of years or for life, beginning right away, or in the future, whatever your needs are.

If you are in a saving-money stage of life, annuities can help you:

  • Meet your retirement income goals.
  • Manage and diversify your investment portfolio.
  • Have different options.
  • Benefit your heirs.
  • Plan your estate.

If you are in a need-income stage of life, annuities can help you:

  • Have a lifetime income.
  • Protect against outliving your assets.
  • Protect your assets from creditors.
  • Diversify investment risk.
  • Tax deferral on investment earnings. 

Purchasing an Annuity?

Read important questions and information for prospective buyers.

How do I determine the Right Annuity for Me?


1. How do you want to pay into your contract?

When you give the issuing insurance company a lump sum, you buy a single-premium annuity. The issuing company may set minimum and maximum amounts they will allow. You may also buy a flexible-premium annuity. This annuity type enables you to determine the timing and amount of additional payments.

2. When do you want benefit payments or payouts to begin?

If you want income to start right away, you will need an immediate annuity. An immediate annuity is a type of contract which begins paying out within one annuity period - e.g., one month or one year, after it is purchased - and pays principal and earnings in equal payments over some time period.


For example, if you schedule your income payments to be paid monthly, the first payout will occur one month after your purchase. Retirees or soon-to-be retirees typically buy immediate annuities with money they have already accumulated for retirement. This contract is purchased with a single premium.


On the other hand, payouts from deferred annuities (a type of contract used to accumulate money over a number of years) usually begin many years after the insurance company issues the contract. You may wait to select your payout options later. When you need the funds, you may take your money either in a lump sum, through systematic withdrawals or by electing a payout option to annuitize - converting the deferred annuity you have accumulated into a stream of regular payments. Because deferred annuities are accumulation vehicles, individuals of all ages purchase them for personal retirement savings funds and for special tax-deferred programs such as IRAs, Keogh plans and tax-sheltered annuities. These contracts can be either a single- or flexible-premium type.


3. Options for your savings

Annuities are long-term investments to help you accumulate assets on a tax-deferred basis. When purchased to fund a tax-qualified plan, which already provides tax deferral, annuities provide other unique benefits such as options for guaranteed lifetime income you cannot outlive.

Under fixed annuity contracts, the life insurance company pays an interest rate for a specific period at the time the annuity is purchased. At the end of each guaranteed period, the current rate (the interest rate currently paid on a fixed annuity contract for a specific period of time) is raised or lowered based on the company’s interest rate policy.


Fixed annuities transfer the market risk from the investor to the life insurance company.


A type of fixed annuity, called an indexed annuity, grows at an interest rate determined by a formula based on the rise or fall of a market index, such as the Standard & Poor’s 500. While indexed annuities may offer the opportunity for higher returns than traditional fixed annuities, they may not pay as much as an investment in equities, or equity mutual funds that invest in equities. However, they can offer protection against loss in the event of a market downturn, whereas a direct investment in equities such as through stock, or mutual funds includes risk of loss, including principal.


Whether you choose a fixed, indexed or other type of annuity contract depends on your own personal risk tolerance and the product features.


Compare Annuities to Other Financial Products

Here is a quick comparison of features of annuities to other financial products:


Product Type Rate Of Return Guaranteed? Liquidity Contract Charges Earnings Tax-Deferred?
Fixed Annuity Yes by insurer 10% of premiums per year without charge. Otherwise, penalties apply.** Yes Yes*
Federally-Insured Bank CD Yes, by bank Yes.  Minimal penalties on accrued interest may apply. No No
Stocks No. Risk of loss, including principal. Yes. No penalty, but sales commission may apply. No No
Mutual Funds No. Risk of loss, including principal. Yes. No penalty, but sales commission may apply. No No


*When purchased to fund a tax-qualified retirement plan, there is no additional tax deferral to that already provided by the plan.
**Because annuities provide tax deferral benefits, withdrawals prior to age 591/2 may be subject to tax penalty.