Annuity Product Types and Features
The product map
Annuities split by how premiums are paid (single premium vs. flexible premium) and by how the contract is funded (fixed, indexed, variable).
- Fixed deferred annuity: insurer credits a declared rate, often with a minimum guaranteed rate. Principal and credited interest are backed by the insurer's claims-paying ability.
- Fixed indexed annuity (FIA): credited interest links to an external index subject to caps, participation rates, spreads, and floors. The floor (often 0%) limits loss from index performance but does not eliminate surrender-charge risk or insurer credit risk.
- Variable annuity (VA): separate account subaccounts with market risk; regulated as a security, requiring a securities license and a prospectus.
- Immediate annuity: income begins shortly after purchase; the payout is determined by payout rates, age, and payout option.
- Multi-year guaranteed annuity (MYGA): a fixed rate locked for a stated term, with surrender charges during the term.
Riders
Common riders include guaranteed lifetime withdrawal benefits (GLWB), guaranteed minimum income/accumulation/withdrawal benefits, and long-term care or terminal illness waivers. Riders usually carry explicit fees and may restrict withdrawals.
Traps
- "Guaranteed" is not absolute. Guarantees are subject to the insurer's ability to pay; state guaranty associations provide limited, not unlimited, protection.
- Indexed ≠ market participation. A cap of 8% means the consumer does not receive the full index gain; a 0% floor does not offset surrender charges.
- Variable products require a prospectus and securities registration; presenting a VA without those is a violation.
- Bonus annuities often pair a premium bonus with longer surrender schedules or higher fees; the bonus is not free money.
Rule of thumb
Match the product's risk transfer (who bears market risk) to the consumer's stated objective: fixed and indexed shift market risk to the insurer within limits; variable keeps it with the consumer.