Annuity Basics

Annuities are insurance contracts designed to provide guaranteed income, typically for retirement. Understanding the fundamentals helps you match the right products to your clients' needs. What is an Annuity? An annuity is a contract between an individual and an insurance company. The individual makes a payment (or series of payments), and in return, the insurer provides periodic payments beginning either immediately or at some point in the future. Types of Annuities By Payment Timing Immediate Annuities: Income begins within 12 months of purchase. Ideal for clients who need income now. Deferred Annuities: Accumulation period before income begins. Suitable for clients planning ahead. By Growth Mechanism Fixed Annuities: Guaranteed interest rate for a set period. Predictable and safe. Fixed Indexed Annuities (FIAs): Returns linked to market index with downside protection. Variable Annuities: Investment in sub-accounts with market risk and growth potential. Key Features Tax Deferral: Earnings grow tax-deferred until withdrawal Death Benefit: Passes to beneficiaries, often avoiding probate Lifetime Income: Option for payments that can't be outlived Principal Protection: Many types protect against market losses When to Consider Annuities Annuities may be appropriate for clients who: Have maxed out other tax-advantaged accounts Want guaranteed lifetime income Seek principal protection with growth potential Are concerned about outliving their savings Important Considerations Surrender charges may apply for early withdrawals Withdrawals before age 59½ may incur tax penalties Fees vary significantly between products Guarantees are backed by the issuing insurance company