Buying an annuity

6 steps to buying an annuity

1. Decide how long you want to receive payments for

You can choose a term-certain annuity that makes a specified number of payments over a set period of time. Or you can choose a life annuity, which will give you a regular income for the rest of your life.

2. Decide what options you need

You can add options like a guaranteed benefit period, which means the payments from a life annuity will continue to your spouse, beneficiary or estate after you die. Or you can choose an indexing option, which increases your payments automatically to keep up with inflation.

3. Compare annuities and providers

Compare costs and understand how they will affect your annuity income. This includes any up-front commissions or sales fees. Buy only from a strong life insurance company with a high credit rating. In general, the higher the credit rating, the more likely it is in the opinion of the credit rating agency that a company will meet its payment obligations. Find out how long the company has been in the annuity business and its track record. Since an annuity is a long-term contract, you want to make sure the life insurance company will be around as long as you are.

4. Decide on how often you want to receive payments

You can receive your payments monthly, quarterly, semi-annually or annually.

5. Choose a beneficiary

This is the person who will get any annuity payments that continue after your death.

6. Review and sign the contract

Read the application and other papers with care before you sign. Do the same with the contract when it arrives. File your contract with your other important legal papers.

Compare annuity rates

It’s worth shopping around to compare annuity rates. Or you may want to ask an annuityAnnuity A contract usually sold by life insurance companies that guarantees an income to you or your beneficiary at some time in the future. An annuity is a contract with a life insurance company. When you buy an annuity, you deposit a lump sum of money, and the insurance company agrees to pay you a guaranteed…+ read full definition brokerBroker A registered person who brings together someone who wants to buy investments with someone who wants to sell. Brokers often charge a fee or commission for buying and selling investments for you.+ read full definition to find the best deal for you.

Caution

Every option you buy lowers the payments you receive from your annuity. Make sure you understand by exactly how much.