An annuity is a contract with an insurance company: you contribute money, and in exchange the insurer makes payments to you — either starting soon (immediate) or years later (deferred). The appeal is simple: it is one of the few tools that can convert savings into income you cannot outlive.
The four common types
- Fixed — a declared interest rate, like a CD issued by an insurer. Predictable, simple.
- Fixed Indexed (FIA) — interest credited based on an index, with a floor and cap, similar in spirit to IUL crediting.
- Variable — your money is invested in subaccounts and can lose value; usually paired with optional income guarantees for a fee.
- MYGA — a multi-year guaranteed annuity that locks a rate for a set term, often 3 to 7 years.
The questions that matter more than the type
Before any annuity, ask: What is the surrender period and charge schedule? What fees apply, including rider fees? What exactly is guaranteed, and what is projected? How is the income rider different from the account value? What happens to the money when I die?
A good annuity solves a specific problem — usually predictable lifetime income or principal protection. A poor fit usually comes from buying the product before defining the problem.
Educational content only; not financial advice. Guarantees are backed by the claims-paying ability of the issuing insurer. Consult a licensed professional about your situation.