Key Types of Annuities

The annuity marketplace includes thousands of product options. Before purchasing an annuity, it’s important to understand the key types available, how they differ, and how each may support your long-term financial objectives.

There are five primary annuity types:

• Immediate annuities (SPIAs)
• Multi-year guarantee annuities (MYGAs)
• Fixed annuities
• Fixed index annuities
• Variable annuities

Quick Comparison of Annuity Types

The table below summarizes how each type of annuity works, including how interest is credited and whether your principal is protected.

Annuity Type	How Interest Is Credited	Principal Protection	Market Risk	Income Options
Immediate Annuity	Set payout (no growth phase)	Yes	No	Guaranteed, immediate
Fixed Annuity	Guaranteed interest rate	Yes	No	Deferred, guaranteed
Fixed Index Annuity	Tied to market index	Yes	No	Deferred, guaranteed income available with rider
Variable Annuity	Based on subaccount investment returns	No	Yes	Deferred, optional income riders
Multi-Year Guarantee Annuity (MYGA)	Guaranteed rate for set term	Yes	No	Deferred, guaranteed

Annuities are generally categorized as either immediate or deferred. With the exception of immediate annuities, all other types are considered deferred. They can also vary by whether they are fixed or variable, and by how interest is calculated and credited. For those seeking conservative growth potential, a fixed index annuity may be a suitable option.

Immediate Annuity

Often referred to as a single-premium immediate annuity, this product is typically funded with a one-time lump sum payment. In exchange, the insurance company provides a guaranteed income stream, usually for the rest of your life. Some contracts include provisions for payments to continue for a set period after death.

When purchasing this type of annuity, the full premium is transferred to the insurance company, and the funds are no longer accessible aside from receiving scheduled income payments.

Fixed Annuity

Fixed annuities provide a guaranteed interest rate during the accumulation phase, as defined by the insurer or the contract terms. After the accumulation phase, income payments—once started—are typically fixed for the duration of the payout period.

Fixed Index Annuity

Fixed index annuities combine the features of fixed annuities with the potential for interest credits linked to a market index, such as the S&P 500®. These annuities do not invest directly in the market, which helps protect principal from market-related losses.

Most contracts guarantee a minimum interest rate. Some fixed index annuities offer optional income riders, providing flexible access to lifetime income benefits.

Variable Annuities

Variable annuities include an investment component. Premiums are allocated to subaccounts—similar to mutual funds—and returns depend on market performance. These annuities may offer optional fixed income or guaranteed withdrawal riders. Because of their investment exposure, both principal and earnings are subject to market risk.

Multi-Year Guarantee Annuities

Also known as fixed rate annuities, MYGAs guarantee a specific interest rate for a predetermined number of years. The guarantee typically matches the length of the surrender charge period. In contrast to fixed annuities, which may reset after the initial term, MYGAs offer a fixed rate for the entire contract period.

What Are Some Benefits of Fixed Deferred Annuities?

Deferred annuities offer the ability to convert accumulated value into income at a later date. You can elect to receive payments monthly or on a different schedule. The amount you receive is based on the account value and the benefit rate in effect at the time of payout, which may depend on your age, chosen income option, and other contract factors. Guaranteed rates are outlined in the contract and current rates may vary.

Fixed Deferred Annuity Income Payment Options

• Life only: Pays income for your lifetime, with no payments to beneficiaries after death.
• Life with period certain: Pays income for life and guarantees payments for a defined period (e.g., 10 or 20 years). If you pass away during the guaranteed period, your beneficiary will receive the remaining payments.
• Joint and survivor: Continues income payments for as long as either you or your beneficiary lives. Payment amounts may adjust after the death of the primary annuitant, depending on the contract terms.

Key questions to ask your advisor before buying an annuity:

• Is this a single-premium or flexible-premium annuity?
• What type of annuity is this and how does it function?
• What is the initial interest rate and how long is it guaranteed?
• Does the initial rate include a bonus? If so, how much?
• What is the guaranteed minimum interest rate?
• What renewal rate is currently credited on similar annuity contracts?
• Are there surrender charges or penalties for early withdrawal?
• Are partial withdrawals allowed under conditions such as death, terminal illness, or nursing home confinement?
• Is there a market value adjustment (MVA) provision?
• Are there additional fees or charges deducted from the premium or contract value?
• Will the contract value or interest crediting method change based on payout period or withdrawal timing?
• Is there a death benefit included, and how is it determined?
• What income payout options are available, and can they be changed once selected?

Glossary of Key Annuity Terms

• Annuitization: Converting your annuity’s accumulated value into a guaranteed stream of income payments.
• Cap Rate: The maximum interest credited in a period for a fixed index annuity. Example: If your cap rate is 6% and the index grows by 10%, your contract will only be credited 6% for that period, even though the index gained more.
• Floor: The minimum interest credited to your annuity, even if the underlying index has a negative return. Example: If your annuity has a 0% floor and the market goes down -8%, you earn 0%—your account doesn’t lose value due to market losses.
• Income Rider: An optional add-on that provides guaranteed lifetime income, often for an additional fee.
• Market Value Adjustment (MVA): A feature that adjusts your contract value if you withdraw funds early, based on interest rate changes.
• Participation Rate: The percentage of an index’s gain that is credited to your annuity. Example: If the participation rate is 50% and the index grows 10%, your annuity would be credited with 5% interest (50% of the gain).
• Period Certain: A payout option that guarantees payments for a set number of years, even if the annuitant passes away.
• Principal Protection: Assurance that your original investment cannot decrease due to market losses.
• Surrender Charge: A fee imposed for withdrawing funds from an annuity before the end of a specified period.

What’s the Takeaway?

Annuities vary widely in design and features. The best option for your situation depends on your financial goals, risk tolerance, and income needs. Reviewing all available options is critical to selecting a suitable solution.