An annuity is a long-term, largely irrevocable financial commitment. Before you sign, these 15 questions will help you evaluate the product, the insurer, and the person selling it to you.
About the Product
1. What type of annuity is this, and what problem does it solve for me specifically? Fixed, variable, indexed, immediate — each type serves a different purpose. If the agent cannot clearly explain what specific gap in your retirement plan this fills, that is a red flag.
2. What is the all-in annual cost? Request a written breakdown of every fee: mortality and expense charges, administrative fees, rider fees, and sub-account expenses (for variable). A common answer for commission-based variable annuities: 2.5–3.5%/year. Compare this to what a portfolio of index funds would cost (0.05–0.20%/year).
3. What is the surrender period, and what are the surrender charges? Most annuities lock up your principal for 7–10 years. Ask for the full surrender charge schedule: year 1, year 2, and so on through the end of the period. A typical schedule: 9%, 8%, 7%, 6%, 5%, 4%, 3%, 2%, 0%.
4. What are the free withdrawal provisions? Most contracts allow 10% of the account value per year without surrender charge. Confirm the exact amount and whether withdrawals are cumulative.
5. How are the crediting rates or investment options determined? For fixed annuities: what is the current credited rate, and what is the minimum guaranteed rate? For FIAs: what is the cap rate, participation rate, and spread — and what is the guaranteed minimum? For variable: what are the sub-account expense ratios?
6. What payout options are available? Life-only, period certain, joint and survivor — understand all options before you commit. Can you change options later? (Usually no, once you annuitize.)
7. Does this annuity have a free look period? Confirm the length (at minimum 10 days; often 30 days if you are 60+). Plan to read the full contract during that window.
About the Insurer
8. What is the insurer’s AM Best financial strength rating? Only purchase from insurers rated A (Excellent) or better by AM Best. An A- or higher rating indicates the company can meet its long-term obligations. Avoid any insurer rated B++ or lower.
9. How long has the company been in business? Prefer insurers with 20+ years of operating history and a track record through multiple market cycles. New entrants with aggressive marketing are higher risk.
10. What happens to my annuity if the insurer fails? State guaranty associations provide protection — typically $250,000 in present value of annuity benefits per person per company (limits vary by state). Ask how the insurer’s guaranty association coverage works in your state.
About the Agent or Advisor
11. Are you a fiduciary on this recommendation? Ask directly: are you legally required to act in my best interest, or only to recommend a suitable product? If not a fiduciary, ask why not and what standard they are held to.
12. What commission do you earn if I buy this? Commissions are legal, but you have a right to know. Typical commissions: 3–10% of premium. A 7% commission on $200,000 is $14,000 — significant motivation that may influence the recommendation.
13. Do you have access to no-load or lower-cost alternatives? If the agent only has access to commission-based products, ask whether a fee-only advisor could offer a no-load alternative worth comparing.
About Alternatives
14. Have I maxed all other tax-advantaged accounts first? IRA ($7,000/year) and 401(k) ($23,500/year) should be maxed before a non-qualified annuity for most people. The annuity’s tax deferral is most valuable when no other tax-advantaged space remains.
15. What would happen to my retirement plan if I did not buy this annuity? A legitimate annuity recommendation should fill a specific gap. If the answer is vague — “you’ll miss out on guaranteed income” without a clear comparison to alternatives — push back. Sometimes a simple SPIA or index fund portfolio achieves the same goal at far lower cost.
Red Flags Summary
| Red flag | What it signals |
|---|---|
| Agent cannot clearly state all-in fees | Hidden cost structure |
| No AM Best rating disclosed | Insurer may be poorly rated |
| Surrender period longer than 10 years | Unusually long lock-up |
| Agent refuses to disclose commission | Non-fiduciary behavior |
| Pressure to decide quickly | High-pressure sales tactic |
| Illustration assumes high returns without disclosure | Cherry-picked projection |
| Agent says “you need this” without analysis | Product-first, not plan-first |
These questions belong in every buyer’s checklist — the full purchase guide is in the annuities hub. Walk through the process step by step with how to buy an annuity, and reduce fees by seeking commission-free annuities.
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy