What is an annuity? - Why Insurance Me

An annuity is a contract with an insurer in which you pay a lump sum or series of payments in exchange for income later, often in retirement. Annuities come in several types with very different risk and cost profiles.

The main types

Fixed annuities pay a guaranteed rate. Variable annuities tie returns to investments you choose, adding risk. Indexed annuities link returns to a market index with caps and floors. Each balances growth potential against certainty differently.

How payouts work

Annuities can pay out immediately or be deferred to grow first. Income can last a set number of years or for life, depending on the contract you choose.

What to watch for

Annuities can carry fees, surrender charges for early withdrawals, and complex terms. Understanding the costs and guarantees, and how they fit your retirement plan, matters before committing.

Frequently asked questions

＋ What are the main types of annuities?

Fixed annuities pay a guaranteed rate, variable annuities tie returns to investments, and indexed annuities link returns to a market index with caps and floors. Each balances growth and certainty differently.

＋ When does an annuity pay out?

Immediate annuities begin paying soon after purchase, while deferred annuities grow first and pay later. Payments can last a set period or for life, depending on the contract.

＋ What is a surrender charge?

It is a fee for withdrawing money early from an annuity, usually within the first several years. Surrender charges and other fees vary by contract.

Educational content only — not legal, financial, or insurance advice. Requirements and pricing vary by state.

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