What an annuity is
An annuity is a contract between you and an insurance company. You give the company a lump sum. In return, the company promises to grow that money in a set way and, if you want, to pay it back to you as income later. The promises come from the insurance company. They are not bank deposits and are not insured by the FDIC or any government agency.
We help with two kinds of fixed annuities. Neither one is invested in the stock market, and an index loss does not reduce your principal under the contract's terms. Surrender charges, market value adjustments and rider fees can still reduce what you get back.
Multi-year guaranteed annuity (MYGA)
How it works: You pick a term, often three, five or seven years. The insurance company sets an interest rate for that whole term and guarantees it. The rate does not change until the term ends. At the end, you can take the money, renew, or move it to another contract.
What people like: You know the rate before you sign, and you know what you will have at the end. It works much like a bank CD, but through an insurance company, and the growth is tax-deferred while it stays in the contract.
The trade-offs: Taking money out before the term ends usually means a surrender charge. Many contracts let you take out interest, or a set percent each year, without a charge. Read the contract to see what yours allows.
Who it fits best: People with money they will not need for a few years, who want a set rate and no surprises.
Fixed indexed annuity (FIA)
How it works: Your money is not placed in the stock market. Instead, the insurance company credits interest based on how a market index, like the S&P 500, performs over a set period. If the index goes up, you earn interest, usually up to a cap or a share of the gain. If the index goes down, you earn zero for that period. Your principal and past credited interest are not reduced by the index loss under the contract's terms.
What people like: A chance to earn more than a set rate in good years, and no index losses in bad years. Many contracts also offer an income rider that can pay a set amount for life, for an extra cost.
The trade-offs: Caps and participation rates limit how much you earn, and the company can change them each year within the contract's limits. Surrender periods are often longer than a MYGA, and riders have fees. The moving parts take more explaining, which is why we go through them with you line by line.
Who it fits best: People who want growth potential without exposure to index losses, and who can leave the money in place for the surrender period.
Side by side
| Question | MYGA | Fixed indexed annuity |
|---|---|---|
| How interest is set | One rate, guaranteed for the full term | Tied to an index, with a cap or share, floor of zero |
| Can an index loss reduce my principal? | No. Charges and fees can still reduce value | No. Charges and fees can still reduce value |
| Typical term | 3 to 7 years | 5 to 10 years |
| Early withdrawal | Surrender charge during the term | Surrender charge during the term |
| Lifetime income option | Sometimes | Often, through a rider with a fee |
| Tax on growth | Deferred until withdrawn | Deferred until withdrawn |
Things to know before you sign
- Surrender charges. Every fixed annuity has a period when taking out more than the free amount costs you. Make sure the term fits when you might need the money.
- Company strength. The guarantees depend on the insurance company's ability to pay its claims. We show you the ratings from the independent rating agencies for each company.
- Free look. After your contract arrives, you have a free-look period, at least 10 days in most states, to cancel for a full refund. The exact number of days is printed on the contract.
- Best interest review. Before you buy, we complete a review that looks at your age, income, savings and goals, as Missouri and Kansas rules require. If an annuity does not fit, we will tell you.
How this fits with Medicare
An annuity is not a Medicare plan and does not pay for health care. It is a separate decision about retirement savings. When you meet with us about Medicare, that conversation stays about Medicare. If you want to talk about an annuity, we set up a separate time, so each topic gets the attention it deserves.
Ask us for a comparison
Tell us your name and number. Someone from our team will call to learn what you want the money to do, then show you current offers from the insurance companies we work with. There is no fee and no pressure.
Rather talk now? Call (816) 307-6165 or send us a note.
Annuities are insurance contracts issued by licensed insurance companies. Guarantees are backed by the claims-paying ability of the issuing company and are not insured by the FDIC or any government agency. Fixed indexed annuities are not stock market investments and do not directly participate in any index. Cole Insure is a licensed insurance agency, not a registered investment adviser, bank or tax adviser. This page is for education and is not a recommendation for any one product. Product availability, rates, caps, and terms vary by company and state and can change. Read the contract and disclosure documents before you buy.
Questions people ask us
Is an annuity the same as a bank CD?
No. A CD is a bank product insured by the FDIC. An annuity is a contract with an insurance company. Its guarantees rest on that company, not on the FDIC or any government agency. The two can play a similar role for money you want to keep steady, but they are not the same thing.
Can I lose money in a fixed indexed annuity?
With a fixed indexed annuity, index losses do not reduce your principal under the contract's terms. Taking money out early can trigger surrender charges and, in some contracts, a market value adjustment, which can reduce what you get back. Fees or riders can also lower your value. We go through the contract with you so you know how it works.
Can I get to my money if I need it?
Most contracts let you take out a set amount each year, often up to 10 percent, without a charge. Larger withdrawals during the surrender period usually have a charge. Many contracts also waive charges for nursing home confinement or terminal illness. Check the contract for its own rules.
How does an annuity fit with Medicare?
It does not. An annuity is not a Medicare plan and does not pay medical bills. It is a separate decision about retirement savings, and we talk about it in a separate conversation from your Medicare review.
Are annuities taxed?
Money inside an annuity grows tax-deferred, which means you do not pay tax on the growth until you take it out. Withdrawals before age 59 and a half may also face an IRS penalty. We are not tax advisers, so please check with your tax professional about your own situation.
Do you charge a fee to help with an annuity?
No. We are paid by the insurance company if you choose a contract. You do not pay us for our time, and the terms of the contract are the same whether you work with us or go to the company directly.