Frequently Asked Annuity Questions

Get the answers to your annuity questions.

In the broadest terms, an annuity is a contract between you and an insurance company, where you make a premium payment(s) in exchange for the benefits defined in the contract.

With a fixed annuity, your deposited premium and all contract provisions are guaranteed by the issuing insurance company. For that reason, it is prudent to research the financial strength and ratings of the issuing company.

Technically, there is no such thing as a hybrid annuity. But rather, that is an industry coined term typically used to describe a Registered Index Linked Annuity (RILA). 

Yes, you can not lose money in a fixed annuity. Insurance companies as a whole have a long history of stability, even though our nation’s most difficult economic times. Fixed annuities, unlike variable annuities, are backed by the full faith and credit of the issuing insurance company. 

With fixed annuities, there are no fees, upfront loads or sales charges. 100% of your money goes into your contract without any expense to you. The only time you might experience a fee, is if you choose to add an optional rider that comes with a cost.

A CD-type annuity is an industry coined term to describe a multi-year guarantee annuity (MYGA). The interest rate is guaranteed in advance for a set number of years, similar to a bank CD.

That depends entirely on the annuity product that you ultimately decide to purchase. Most of the annuities sold by My Annuity Store have 2-10 year surrender terms. However, there are products on the market that have surrender terms as long as 16 years.

Absolutely, this is something we help our clients do all the time. 

No. Annuities are not guaranteed by any bank or credit union and are not insured by the FDIC or any other federal government agency. Each state does have a State Guaranty Association to protect the policyholders in its state.

Annuities grow tax-deferred meaning you will not pay taxes on the interest you earn until you withdraw it from your annuity.

An income rider is an optional benefit that can be added to an indexed annuity contract, usually for a fee. It is designed to help generate a higher level of guaranteed lifetime income at a future date, regardless of the performance of the underlying accounts.

All insurance products, including annuities, are regulated at the state rather than the federal level. Each state has a Life & Health Insurance Guaranty Association that backs fixed annuity products up to certain dollar limits. To find out the coverage in your state, visit our State Guaranty Association page.

Every state requires insurance companies to provide a “free look” period that begins on the date you take delivery of your contract. It is usually a 10 day or longer period of time in which you are afforded the opportunity to review your contract, and have the right to reverse your purchase decision, returning it to the insurance company for a full refund. Think of it as a type of 100% money back guarantee.

Almost all annuities have some type of penalty-free withdrawal provision. The most common is the right to withdraw up to 10% of your account value annually without penalty. That being said, penalty-free withdrawal provisions do vary from one annuity to the next, so be sure to understand the details prior to making a purchase decision.

Nearly all annuities will pay your named beneficiaries your full account value, without penalty, upon death.

single premium immediate annuity (SPIA)  is the oldest known form of annuity contract. It is a product that is designed to provide a guaranteed income stream, most typically for an individual or joint lifetime, with payments beginning in less than one year. Immediate annuities can also be structured to provide guaranteed income for a specified time period.

Both financial products guarantee a predetermined fixed interest rate for a specified period of time. The most notable differences are that a Certificate of Deposit (CD) is issued by a bank or credit union, while a multi-year guaranteed annuity is issued by an insurance company. 

Also, when interest earnings are left to grow and compound, they are tax-deferred within an annuity, whereas the CD interest earnings must be reported on your income tax return each year.

Our clients incur no fees, sales charges or upfront loads when utilizing our annuity shopping services. However, we do earn commissions paid to us directly from the insurance companies that we place business with.

An exclusion ratio is that portion of an annuity income payment, represented as a percentage, which is considered a return of premium (cost basis) and therefore not taxed.

1035 is a section of the tax code that allows for the tax-free exchange of non-qualified funds from one annuity contract to another. As long as the money is transferred directly from the old insurance company to the new insurance company, the tax-deferred status of the account remains intact and the 1035 exchange does not create a taxable event.

Life Only is one of the many annuity payout options available when structuring an immediate income annuity. If you choose the Life Only payment option, guaranteed income paymill be made to you for as long as you are living and will cease upon your death.

Qualified funds are those contained within a tax qualified account, such as an IRA or 401k. Non-qualified funds are everything else.

There are many differences between fixed indexed annuities and variable annuities too numerous to address in this FAQ. But the most significant difference is that your principal is protected with a fixed indexed annuity, whereas with a variable annuity, your funds are subject to market risk.

Many (but not all) annuities have enhanced withdrawal provisions, commonly referred to as living benefits, for certain catastrophic life events such as an extended nursing home stay or terminal illness.

What makes an annuity an annuity is its ability to provide guaranteed, lifelong income in retirement. Some annuities exist to do only that, while others have that as just an option. There are three types of income annuities:

  1. Immediate annuity (provides guaranteed, lifelong income starting 1-12 months after purchase)
  2. Longevity annuity (provides guaranteed, lifelong income starting 2-40 years after purchase)
  3. Qualified Longevity Annuity Contract or QLAC (a longevity annuity purchased with IRA funds starting after age 72)

The other type (which has the option but not requirement) to provide income is known as a deferred annuity. There are three types of deferred annuities:

  1. Fixed annuity or multi-year guaranteed annuity (like a CD, it provides a guaranteed rate of return for a fixed number of years)
  2. Fixed indexed annuity (investment product that tracks market indices with limits on how much you can gain/lose)
  3. Variable annuity (investment product using mutual funds with limits on how much you can gain/lose)
For more information on the various types of annuities visit our Types of Annuities page.

Qualified Longevity Annuity Contract, or QLAC for short, is a special type of longevity annuity. The QLAC is a way to purchase a longevity annuity using your qualified retirement savings (such as from an IRA or 401(k) rollover) but delays the start of that income to after age 72. It’s given this special designation because it overrides the IRS-required minimum distribution (RMD) rules.

The average American is living longer, which means that your savings have to last longer too. At the same time, the decline of pensions has made it harder to be financially prepared for retirement. Preparing for retirement with just savings exposes you to market volatility and risks, i.e. your investments might lose value and/or you might live longer than you expect. Guaranteed retirement income — like pensions and annuities — mitigates both of these risks. 

Visit our Life Expectancy Tables page to see your life expectancy.

A Fixed index annuity is a popular retirement savings vehicle that provides downside protection and upside potential based on the performance of a stock market index. 

A longevity annuity, a.k.a. deferred income annuity or DIA for short, provides lifetime income starting 2-40 years from now. Money is paid upfront, but the income payments you receive are delayed for a period of 2-40 years. Because of the deferral, you will receive higher monthly income as compared to an immediate annuity. You’re also able to add additional payments to the contract over time (known as the Personal Pension). Longevity annuities can be good for people who want income starting years in the future.

Retirement income is the “salary” you receive once retired. The traditional sources of retirement income are Social Security and pensions, both of which are guaranteed to last for life. Annuities provide supplemental guaranteed retirement income. In addition, you can generate retirement income (that isn’t guaranteed) by withdrawing from the assets you accumulated over time (think 401(k), brokerage and savings accounts).

An IRA is a tax-advantaged personal retirement savings account (away from your employer). A Traditional IRA accepts pre-tax money and withdrawals are fully taxed as ordinary income. On the other hand, a Roth IRA accepts post-tax money and withdrawals are tax free. The money you save into your IRA can be invested in the stock and bond markets.

Your money is invested conservatively in the insurance companies’ General Accounts, largely in fixed income investments as well as in some equities. Importantly, they take on all of the investment risk. So if the markets underperform, it’s on them. Not you. 

As long as you pay taxes, you’re already generating retirement income in the form of Social Security. If you’re lucky, you may also have an employer pension. Otherwise, you can generate retirement income by saving into a Personal Pension. Each deposit into your Personal Pension turns into a guaranteed lifetime income annuity.

Retirement savings are a finite amount of money that you will need to withdraw money from to support your retirement. Unless you’ve amassed a very significant amount of wealth, you risk running out of money in retirement for many reasons, like:


  1. you wound up living longer than you expected or
  2. markets didn’t do as well as you expected.

Retirement income, on the other hand, is infinite. It comes in the form of Social Security, pensions, and annuities, all of which are not dependent on the market and are guaranteed to last as long as you do.

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