Annuity Basics

The following is intended to provide a broad overview of annuities and answer some basic questions.

What Is An Annuity?

An annuity is an insurance product designed to provide income -- either at some future date or immediately. With any annuity, the consumer makes at least one payment (called a "premium") to an insurance company. The insurance company, in turn, agrees to provide income payments to the consumer in the future or right away. Because there are several different varieties of annuities, it is easiest to break them into two broad groups -- deferred annuities (those designed to pay in the future) and immediate annuities (those designed to provide income immediately.)

What should one look for in an annuity provider?

When purchasing an annuity from an insurance company, you are placing your money, your trust and part of your future financial well-being with that company. Be sure that the company you choose has a long track record of meeting its financial obligations and is financially strong. By researching and comparing the financial condition and credit ratings of several insurance companies you will be able to make an informed decision.

Check the insurance company's financial condition. Ask your financial counselor or your state's insurance department for this information. Research the credit ratings of the insurer versus those of other providers. The rating applies to the company that issues the annuity, not to any specific annuity product or to any underlying investments. The most widely-known credit rating agencies are Standard and Poor's, Moody's, Fitch, and A.M. Best.

What are the different types of annuities, their advantages and disadvantages?

While this overview points out elements that many annuities have in common, there are hundreds of different annuity products available today, each with its own particular features, benefits and pay-out options. Within that very large group of annuity products, it is possible that particular annuities may behave differently than the descriptions given here.

What types of pay-out options are available from annuities?

If you are interested in annuities, we encourage you to learn as much as you can about a particular product and talk to a financial counselor you trust before making any purchase decision.