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Annuities are a financial contract with an insurance company that make a series of income payments to you at regular intervals in return for a premium and premiums previously paid. The value in an annuity contract is the amount in premiums you have paid, minus any applicable charges, plus any interest your premiums have earned. There are two types of annuity products: deferred annuities and fixed deferred annuities.

Types of Annuities

  • Deferred Annuity

A Deferred Annuity is an annuity payment to be made as a single payment or a series of installments to begin at some future date, such as in a specified number of years or at a specified age.

  • Fixed Deferred Annuity

Money in a fixed deferred annuity earns interest at a rate the insurer sets. The rate is fixed (won't change) for some period, usually a year. After that rate period ends, the insurance company will set another fixed interest rate for the next rate period. That rate could be higher or lower than the earlier rate.

Fixed deferred annuities do have a guaranteed minimum interest rate—the lowest rate the annuity can earn. It's stated in your contract and disclosure and can't change as long as you own the annuity. Ask about:

    • The initial interest rate – What is the rate? How long until it will change?
    • The renewal interest rate – When will it be announced? How will the insurance company tell you what the new rate will be?

What You Should Know Before Buying 

Read the fine print. Look carefully at the annuity you are considering. Check the interest rate, find out 
how quickly the annuity will grow in value, and when you can reap its benefits. Some annuity rates can 
change over time, so make sure that you understand the difference between the guaranteed minimum 
rate, the current rate, and any first-year or so-called “bonus” rates. Also make sure you know whether 
the annuity is tax-deferred, meaning that you will not have to pay taxes until you receive payments 
from the annuity.

Try before you buy. Many states have “free look” laws that give you a set number of days — typically 30 
to 60 days — to review an annuity contract after you buy it. You can back out of the contract at any time 
within the “free-look” period; a refund is required to be issued within an allotted time period, as stated 
in your contract. Take advantage of this review period to make sure you understand what you are 

Don’t get caught by surrender charges. Withdrawing your money from an annuity before it has 
matured might subject you to fees, known as surrender charges, as well as other administrative fees 
and acquisition costs. There could be high penalties if you make a withdrawal prior to the maturation 
date provided in the policy. Be sure you are aware of these provisions so that you don’t inadvertently 
incur such costs.

Don’t judge a financial professional by title alone. Designations such as “certified senior adviser,” 
“certified retirement financial adviser,” “chartered senior financial planner” and “certified financial 
gerontologist” might seem to imply expertise in providing investment advice to senior citizens. 
However, such titles don’t always guarantee that the financial professional actually has specialized 
knowledge or education in that area. Ask them what the designations mean to them and what they had 
to do to earn them. Ask them if they have ever lost or given up a designation and, if so, why.

Ask for help. Many people have been harmed by annuity scams. If you are concerned that you might 
have been misled by a fake company or fraudulently sold a misrepresented product, call your state 
insurance department to get assistance and/or file a complaint. You can file a complaint directly with 
your state insurance department via the NAIC’s Web site at www.naic.org/cis/fileComplaintMap.do.

Check the insurance company’s credit rating. Through resources such as Standard & Poor’s, A.M. Best 
Co. or Moody’s Investors Services, you can see whether the annuity company you are considering has 
a solid credit rating. An “A+++” or “AAA” rating is a sign of strong financial stability.

Check the NAIC’s Consumer Information Source (CIS). The NAIC provides a database for consumers to research an insurance company’s financial information and complaint data. The information in the CIS 
is supplied voluntarily by state insurance departments. Not all states provide the data, nor are all 
companies listed within the directory.