Questions to Ask When Buying an Annuity

Shawn Plummer

CEO, The Annuity Expert

Annuities can be a linchpin in your financial planning, but it’s essential to approach them with a clear understanding and meticulous thought. The world of annuities is vast, with many options and variations, such as single-life, fixed, indexed, immediate, variable, deferred, and multi-year guaranteed annuities. This guide aims to equip you with a list of critical questions you should ask before plunging into any annuity purchase. So, let’s dive in and unpack this complex topic in an accessible and relatable manner.

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Questions to Ask When Buying an Annuity

When considering any annuity, the following are general questions you should pose:

  • What are the fees associated with this annuity?
  • How does the annuity work, and what are its features?
  • What are the withdrawal conditions, and are there penalties?
  • Is there a death benefit?
  • What is the financial strength rating of the insurance company?

Questions to Ask When Purchasing a Single-Life Annuity

A single-life annuity provides income for as long as you live, so it’s essential to assess the following:

  • What is the guaranteed income period?
  • How are payments calculated?
  • Is there a provision to increase payments over time to account for inflation?
  • What happens to the remaining money if I die shortly after purchasing the annuity?
Question To Ask When Buying An Annuity

Questions to Ask When Buying a Fixed Annuity

A fixed annuity offers a guaranteed rate of return. Here are some queries to delve into:

  • What is the guaranteed interest rate, and how long is it guaranteed for?
  • How often is interest credited?
  • What is the surrender period, and what are the associated charges?

What Questions Should I Ask Before Buying a Fixed Indexed Annuity?

A fixed-indexed annuity offers potential growth based on a market index. Thus, your queries should focus on the following:

  • Which index(es) is the annuity linked to?
  • How is the interest credited?
  • What are the participation rate, cap rate, and spread?
What Should I Ask Before Buying An Annuity

What Questions to Ask Before Buying an Immediate Annuity?

Immediate annuities start paying income almost immediately after purchase. Ask:

  • When do payments start?
  • How are the payments calculated?
  • Can the payment amount be adjusted for inflation?

What Questions to Ask Before Buying a Variable Annuity?

Variable annuities offer potential growth through investments. Therefore, you should ask the following:

  • What investment options are available?
  • What are the associated fees and charges?
  • What are the risks involved, and what safeguards are in place?

What Questions to Ask Before Buying a Deferred Annuity?

Deferred annuities accrue interest for a period before starting income payments. So, clarify:

  • When will the payments begin?
  • How is the interest credited during the deferral period?
  • What are the surrender charges and withdrawal conditions?
What To Ask When Buying An Annuity

What to Ask When Buying a Multi-Year Guaranteed Annuity

Multi-Year Guaranteed Annuities guarantee a fixed interest rate for a specified period. The key questions here are:

  • What is the guaranteed interest rate, and how long is the term?
  • Can I make additional contributions during the term?
  • What are the penalties for early withdrawal?

Next Steps

Asking the right questions can make the complex process of buying an annuity more straightforward. However, this guide is not exhaustive, and you should always consult a financial advisor for tailored advice to your specific needs. Remember, the more you know, the better equipped you are to make sound financial decisions. Each type of annuity has unique attributes and potential benefits, but they also carry various considerations, risks, and costs. So, don’t hesitate to ask questions, understand the fine print, and assess how a particular annuity aligns with your financial goals and circumstances.

What Question To Ask When Buying An Annuity

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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