8 Essential Annuity Questions - You Need to Know!

Before buying an annuity, ask your advisor these eight questions: What are the total fees? How long is the surrender period? Is the advertised rate guaranteed, or is it a teaser? What happens to my money when I die? How many carriers do you represent? Do you sell QLACs? What is the contractually guaranteed return? Is no more than one-third of my wealth going into this product? Clear answers to each will help you avoid hidden costs, predatory sales tactics, and products that do not fit your retirement goals.

Introduction: Why the Right Questions Change Everything

Traditional pensions are rare now. You have to turn your savings into income that lasts. Annuities can help provide a steady income and some protection against market swings. But they are complicated and hard to undo once you sign.

That complexity is not a reason to walk away. It is a reason to walk in prepared. Whether you are considering your first annuity or re-evaluating an existing contract, the annuity buying checklist below gives you exactly that: eight essential questions designed to expose hidden fees, reveal sales tactics, and ultimately match you to the right product for your specific financial situation.

Before you dive in, picture your retirement. Where do you live? Do you travel? Are you working on a business? Your answers should guide every money decision, including whether you need an annuity at all.

Question 1: Is an Annuity Actually Right for Me?

Annuities are not for everyone. They work best if you want a steady, predictable income in retirement and want to make sure you do not outlive your savings.

A useful system for evaluating suitability is the PILL test. Ask yourself whether you need:

• Principal protection from market drops
• Income for life that you cannot outlive
• Legacy planning to pass wealth to your beneficiaries
• Long-term care planning for potential medical expenses

If any of those needs sound like you, look closer at annuities. If you need quick access to your money or already have enough guaranteed income, an annuity probably is not for you.

Also, do not use money from a 401(k) or IRA to buy an annuity. Annuities already grow tax-deferred, so using tax-advantaged money does not give you any extra benefit. You end up paying for something you do not need.

Question 2: What Are the Total Fees, and Where Are They Hidden?

Annuity fees add up and can eat into your returns. Do not just ask if there are fees. Ask for the total yearly cost of the contract.

Here is what to ask about specifically:

• Mortality and expense (M&E) risk charges: Common in variable annuities, these typically run around 1.25% annually.
• Administrative fees: A separate annual charge that compounds the cost on top of M&E fees.
• Optional rider fees: Income guarantees, better death benefits, and long-term care riders all raise your yearly costs, often by 0.20% to 2.50%.
• Advisor commissions: These are built into the product, not billed to you directly. Most pay 2% to 5%. If it is more, ask why.

Watch for this red flag: If an advisor tries to put a fixed index annuity in an Assets Under Management wrap account and charge you an extra annual fee, that's a conflict. Walk away.

Question 3: How Long Is My Money Locked Up?

Most annuities have a surrender period. If you take out more than allowed, you pay a penalty. Surrender charges start high and drop over time.

Before you sign, clarify the following:

• How long is the surrender period? Most experts say five to seven years is reasonable. Avoid contracts that lock up your money for 10 years or more.
• What can you take out each year without a penalty? Most contracts let you withdraw up to 10% a year, starting in year two.
• What about taxes? If you take money out before age 59 and a half, you pay regular income tax on earnings and a 10% IRS penalty.
• Is there a free-look period? Most states give you 10 to 14 days to cancel and get your money back. This is your last chance to walk away at no cost.

Think about liquidity. If you might need this money during the surrender period, factor that in before you sign.

Question 4: What Return Am I Actually Guaranteed?

Returns can vary widely depending on the type of annuity. The gap between a teaser rate and a real guarantee can cost you a lot over time.

The three main product categories behave very differently:

• Fixed annuities (including MYGAs): Offer a set interest rate for a defined term. Ask specifically whether the advertised rate applies for the full contract term or only in the first year.
• Variable annuities: Returns fluctuate based on underlying sub-account investments and carry market risk.
• Fixed index annuities (FIAs): Linked to a market benchmark such as the S&P 500, with upside potential capped by participation rates and cap rates, and a floor that protects against losses.

Focus on what the contract will actually do, not what it could do. Ask for the exact guaranteed return, not a best-case guess. Numbers based on assumptions are not real guarantees.

Question 5: What Can My Annuity Grow Into?

Growth potential varies by annuity. Your risk tolerance should guide your choice. Some offer more upside, but that usually means more market risk.

Fixed index annuities can protect your principal while still offering some growth linked to a market index. If you want to join in market gains but do not want to risk your main savings, learn how these work.

How much growth you need depends on your age, your steady income, and how much of your portfolio you put into annuities.

Question 6: What Happens to My Money When I Die?

Many people forget to ask about the death benefit until it is too late. Before you buy, find out exactly what your beneficiaries get if you die early.

There are meaningful differences between death benefit structures:

• A basic death benefit pays the remaining contract value to your named beneficiaries.
• An enhanced death benefit may lock in the highest account value your annuity reached, regardless of subsequent market performance, though this feature carries an additional annual cost.
• If you are thinking about cashing in a variable annuity, check the death benefit first. If the market is down, the death benefit may exceed your account value. That can change your decision.

Make sure your beneficiary information is current and set up correctly. If it is missing or outdated, your heirs could face probate and tax problems.

Question 7: Is the Insurance Company Behind This Contract Financially Sound?

Annuities are not FDIC insured. The guarantees are only as strong as the insurance company. This is not a reason to panic, but you should check the company's strength.

Before you sign, verify the insurer's financial strength through independent rating agencies:

• A.M. Best: The gold standard for insurance carrier ratings
• Moody's and S&P Global: Additional independent assessments of claims-paying ability

Look for carriers rated A or better. Beyond carrier ratings, be aware that each state maintains a guaranty association that provides a limited safety net if an insurer fails. Understanding your state's coverage limit is a smart part of any annuity buying checklist.

Question 8: How Do I Know My Advisor Is Actually Working for Me?

The final set of questions to ask before buying an annuity is directed at the person selling it to you. These questions quickly reveal whether you are working with a true annuity specialist or a generalist limited by their product shelf.

Ask these three questions directly:

• How many insurance companies do you work with? Advisors who compare many carriers can find you better guarantees. If your advisor only works with one or two, you are not getting a real market check.
• Do you sell Qualified Longevity Annuity Contracts (QLACs)? This is a litmus test. Many generalist advisors are unfamiliar with QLACs. A real annuity specialist will know them well and be able to explain whether one belongs in your plan.
• How much of my money should go into this annuity? Be careful if anyone suggests more than a third of your assets. Putting too much in one product is risky, and a good advisor will tell you that.

At Annuities.net, independent agents compare products from over 45 top-rated companies, break down all the fees, and give you the facts you need to decide. That level of transparency should be the norm in every annuity conversation.

The Bottom Line: Knowledge Protects Your Retirement

An annuity is one of the most consequential financial decisions you will make, precisely because it is designed to last decades. The 8 questions to ask before buying an annuity outlined here are not a checklist to rush through. They are the foundation of a conversation that should happen before you sign anything.

Here is what to remember:

• Make sure an annuity fits your retirement goals before you worry about costs or products.
• Know the total yearly cost, including all rider fees and commissions.
• Get the contractually guaranteed return in writing, not a projected illustration.
• Know your liquidity, your surrender period, and your free-look window.
• Check the insurer's financial strength before you sign.
• Test your advisor's knowledge and the number of companies they work with.

When you have clear answers to all eight questions, you can make a choice that protects your income, supports your legacy, and gives your retirement a solid foundation.

References

1. Bankrate. (n.d.). Fixed index annuities. Bankrate. https://www.bankrate.com/retirement/fixed-index-annuities/
2. (July 1, 2008). Investor Tips: Variable Annuities. U.S. Securities and Exchange Commission. https://www.sec.gov/investor/pubs/varannty.htm
3. Britannica. (n.d.). Annuity death benefits. Britannica. https://www.britannica.com/money/annuity-death-benefits
4. Knueven, L. (March 29, 2024). What Are A.M. Best Ratings for Insurance Companies?. CNBC. https://www.cnbc.com/select/what-are-am-best-ratings/
5. (2025). What Is the Insurance Guaranty Association?. LegalClarity. https://legalclarity.org/what-is-the-insurance-guaranty-association/

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Disclosure: This article is solely for informational purposes and does not constitute financial, legal, or tax advice. Annuity products vary by carrier and state. Consult a licensed annuity specialist before making any purchase decision.