Fixed, indexed, variable, immediate, deferred — what they actually do, who they're for, and the questions to ask before signing anything.
Annuities are one of the most misunderstood products in personal finance. Some advisors won't touch them. Others sell nothing else. Both extremes usually have more to do with how the advisor gets paid than with what's right for you.
At the core, an annuity is a contract with an insurance company: you give them money, and in exchange they promise income — either now (immediate annuity) or later (deferred annuity).
Fixed annuities pay a guaranteed interest rate, like a CD with insurance-company guarantees. Fixed indexed annuities credit interest tied to a market index with a floor (you don't lose principal to market drops) and a cap (you don't get all of the upside). Variable annuities invest directly in market sub-accounts — more upside, more downside, more fees.
Where annuities earn their keep: turning a lump sum into income you can't outlive. Where they get a bad reputation: when they're sold to people who don't need lifetime income, with surrender periods and fees that don't match the goal.
Three questions before you sign anything: What problem is this solving? What does it cost — all in? And what happens if I need the money sooner than planned?
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PLAN YOUR JOURNEYEducational only. This article is general information, not legal, tax, accounting, investment, or insurance advice. Consult your tax advisor, attorney, or a licensed insurance professional before acting on anything you read here.
Any product features, rates, caps, participation rates, crediting methods, and availability are governed by the issuing carrier's policy contract and applicable state filings, and are subject to change. Guarantees are based on the claims-paying ability of the issuing insurance company. Life insurance and annuity products are not securities, are not FDIC-insured, are not bank guaranteed, and may lose value if surrendered outside contractual terms. Any references to index performance are hypothetical illustrations only; past performance does not guarantee future results, and IUL cash value does not directly participate in the index or the stock market. S&P 500® is a registered trademark of Standard & Poor's Financial Services LLC.
