The questions to ask before buying an annuity cover four things: what the product is, what it costs, how you get your money out and who is paid to sell it. If an agent cannot answer all 12 below clearly and in writing, you are not ready to sign.
Print the checklist and bring it to every annuity conversation. Then use the free look period after you sign to confirm the contract matches what you were told.
What are the 12 questions to ask before buying an annuity?
Each question pulls together a lesson from this course. Ask for the answers in writing, not just out loud.
- What type of annuity is this, and why is it right for me? “It’s a great product” is not an answer. Ask for specifics tied to your situation.
- How long is the surrender period, and what is the charge each year? Get the full schedule, year by year.
- What is guaranteed, and what is not? Separate contract guarantees from hypothetical illustration values.
- What is the minimum guaranteed interest rate? Not today’s rate, but the floor locked in for the whole term.
- What fees, charges and adjustments will I pay each year? Ask for the all-in total, including riders.
- How much can I withdraw each year without a charge? Also ask what happens if you take more.
- What are my options at the end of the term? Renew, withdraw, annuitize or exchange. Get the full menu.
- If I die before taking income, what do my beneficiaries receive? Get the death benefit terms in writing.
- How is this annuity taxed for me and for my beneficiaries? Confirm the answer with a CPA or tax professional.
- What commission or compensation will you receive? On request, the agent must give you an estimate.
- Have you compared this to products from at least three other carriers? If not, ask why.
- What is my free look period in this state, and how do I return the contract? Know the window and the steps before you need them.
End every meeting by asking to take the contract home and review it for a week. An agent who will not allow that is selling, not helping. The right product will still be there next week.
How do you compare carriers?
The same type of annuity can look very different from one insurer to the next. Rates, surrender schedules and rider terms all vary, so one quote tells you little. A fair comparison takes four steps:
- Compare at least three carriers. Line up the same product type and term side by side, using the questions above.
- Check financial strength ratings. Look up each insurer’s ratings from AM Best, S&P and Moody’s, and know what each grade means.
- Confirm the agent’s license. Your state insurance department offers a free lookup to verify the agent is licensed where you live.
- Ask how the agent is paid. Compensation can differ by carrier and product, which can shape what you are shown.
Our step-by-step guide on how to compare annuities walks through a side-by-side worksheet. Our annuity company reviews summarize ratings and product lineups by insurer.
What should you do during the free look period?
The free look period usually runs 10 to 30 days, according to the SEC. Some states and situations allow longer, and the NAIC notes 30 to 60 days in some cases. During that window you can return the contract for a refund of your premium or your current account value, depending on your state and contract.
It is your last real safety net, so use it even if you feel sure about the purchase. Work through these steps:
- Read the entire contract. Not the brochure, the actual contract. Compare every term to what you heard in the sales conversation.
- Check the surrender schedule. Confirm it matches what the agent described, year by year and in writing.
- Match the numbers to the illustration. The rate, caps, participation rates and rider terms should all agree.
- Verify beneficiaries and owners. Make sure names are correct and any joint ownership is set up the way you intended.
- Get a second opinion. An hour with a fee-only planner or a CPA costs little next to the size of the contract.
Our article on how to read an annuity contract shows which pages matter most.
What if the contract does not match what you were told?
Exercise the free look. Fees that were never mentioned, a longer surrender period or different rider terms are all reasons to return the contract.
- Contact the insurer directly. Do not rely only on the agent to process the return.
- Stay inside the window. Note the deadline the day the contract arrives.
- Get it in writing. Ask the insurer to confirm the cancellation and the refund amount.
The free look is the most buyer-friendly feature of the whole purchase. Read the contract during it, especially when you feel confident.
Check your understanding
Five questions to test the checklist and the free look steps.
Lesson 12 quiz: The 12 questions and the free look
5 questions. No sign-up, nothing saved to our servers.
Common questions
Do I really need every answer in writing?
Yes. Spoken promises are hard to prove later, and the written contract is what governs. Written answers also make it easy to compare them with the contract during the free look.
What if the agent says only one carrier fits my needs?
Ask which other carriers they looked at and why each was ruled out. An agent who works with only one insurer may simply have nothing else to show you.
Can I cancel during the free look if I just change my mind?
Generally yes. You do not need a reason to return the contract within the window, but follow the insurer’s written process and keep the confirmation.
You now have the full toolkit: how annuities are built, what they cost, how they pay and are taxed, and what rights you have. Next comes the final exam, which covers every lesson from product types to the questions to ask before buying an annuity.