Questions to Ask Before Buying an Annuity: A Plain Checklist

Why get every answer in writing

An annuity is a long contract. The brochure and the conversation are not the contract. What counts is the policy itself, the disclosure document and the buyer's guide the insurer gives you.

The National Association of Insurance Commissioners (NAIC) model rule on annuity disclosure says that if you do not get the buyer's guide and disclosure document at or before you apply, you must get a free look period of at least 15 days to return the contract without penalty (NAIC Annuity Disclosure Model Regulation 245, 2021 edition). Ask for both documents before you sign. The NAIC buyer's guide is written for consumers and is worth reading in full (NAIC Buyer's Guide for Deferred Annuities, revised 2013).

The NAIC suitability model also requires the seller to explain the basis for the recommendation and to disclose their role and pay (NAIC Model 275, 2020 edition). States adopt it in their own words, so details vary. The questions below are the full grouped list; the most important 12 appear in the box further down.

Costs and how the seller is paid

1. What are all the yearly charges, in percent and in dollars on my deposit?
2. Which charges are guaranteed not to rise, and which can the insurer change?
3. How are you paid on this sale, and is it more than on other products you could offer?
4. Is there a bonus, and what is the trade-off, such as a longer surrender period or lower rates?

For variable annuities, the SEC gives about 1.25% a year as an example of the base mortality and expense charge alone, before fund and rider fees (Investor.gov, Variable Annuities, checked October 14, 2026). See what annuity sellers are paid.

Getting your money out

5. How long is the surrender period, and what is the charge in each year?
6. How much can I withdraw each year with no charge?
7. Is there a market value adjustment (MVA), and how could it change what I get back?
8. Are charges waived for nursing home care, terminal illness or death?
9. If I need a large part of this money in the next three years, what would I lose?

The NAIC buyer's guide notes that many contracts let you take out a small amount, usually up to 10%, each year without the charge (NAIC Buyer's Guide for Deferred Annuities, revised 2013). The SEC notes that surrender periods on indexed annuities typically last six to ten years, or even longer (SEC, Updated Investor Bulletin: Indexed Annuities, July 31, 2020). Surrender charges are covered in detail on our surrender charges page.

How interest is credited

10. Is the rate guaranteed for the whole term, or only for the first year?
11. For an indexed annuity: what are the cap, participation rate and spread, and how often can the insurer change them?
12. What is the lowest the cap or rate can ever go under the contract?
13. Does the index count dividends?

The SEC explains that caps, participation rates and spreads limit the gain credited to you, that index gains are generally figured without dividends, and that insurers commonly reserve the right to change features such as the cap (SEC, July 31, 2020).

Riders, replacements and the company behind it

14. What does each rider cost per year, and is it charged on my account value or on a larger benefit base?
15. Is the income rider value cash I can withdraw, or only a number used to figure lifetime payments?
16. Am I replacing an annuity or life policy I already own? If so, what will I give up and pay to leave it?
17. Where is the written replacement comparison my state requires?
18. What is the insurer's financial strength rating, and from which rating agencies?
19. What does my state guaranty association cover for annuities, and is my deposit above that amount?
20. Is the seller licensed in my state, and for variable annuities, registered with FINRA?
21. How long is my free look period, when does it start, and do I get back my premium or the account value?
22. Who is the owner, annuitant and beneficiary, and what do my heirs owe in tax?
23. How does this fit with my emergency money and other income?
24. Can I take the documents home and review them with a tax professional or a fee-only fiduciary first?

Guaranty associations are a backstop if an insurer fails. In most states the coverage for a fixed annuity is $250,000 in present value of annuity benefits, and limits vary by state (NOLHGA, Product Coverage FAQs, checked October 14, 2026). Check your own state's limit with its guaranty association rather than relying on a sales conversation. For moving an existing contract, see 1035 exchange rules.

When an annuity can make sense

If the answers show a guaranteed rate or income you value, a surrender period shorter than your time horizon, clear costs and a seller who put it in writing, an annuity can be a reasonable choice. The checklist is not meant to scare you off. It is meant to make the trade-offs visible.

To check a seller or company, use your state insurance department, the NAIC Consumer Insurance Search, and FINRA BrokerCheck for variable annuities.

A plain example: what a surrender charge costs

All numbers are hypothetical. Suppose you put $500,000 into a deferred annuity with a 7-year surrender schedule that starts at 7% and a 10% free withdrawal each year. In year one you need $150,000 for a home project.

A market value adjustment, if the contract has one, could raise or lower that figure further. Income tax may also be due on any gain. Questions 5 through 9 are how you find these numbers before you sign, not after.

Sources

The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here, no product is recommended, and RLF accepts no funding from financial companies. Rules and figures change; each one above shows its source and date. Check anything you plan to act on with your state insurance department or a qualified professional who is not paid on the product.