7 Alarming things you must know before buying an annuity

Scott Brooks, MBA, CFP®
5-8 min read

Not every company is going, to be honest with you.

Here are seven things you should be aware of before purchasing an annuity.

As Mark Twain used to say “It’s not what you know that gets you into trouble. It’s what you know for sure, that just isn’t so.”

We want you to be informed and make a wise decision regardless if you do business with us or not.

In House Products

Has an insurance agent told you their company’s product is the best on the market?

The agents are usually paid more to recommend annuities from their own company. They are also much less likely to show you a wide variety of options.

Would you rather deal with an agent who sells his one company’s products or a company that works with over 40?

We work with over 40.

An insurance agent called us years ago because he would receive a $75,000 bonus if he did more annuity business.

The problem was that he had to sell the “in-house” product from his company, and the rates were horrible. We suggested he called our competitors because our clients want the best rates, not the worst ones.

Teaser Rates & Renewal rates

If anyone promises you an annuity with a specific rate, you should know how long the rate is guaranteed.

How many years is the rate guaranteed for? Does the company have a solid history with renewal rates?

This is important because the company decides what to pay for after the initial term is over.

We don’t offer traditional fixed annuities because we do not want you to be surprised later.

Some companies pay huge teaser rates. Then, they disappoint later with awful renewal rates. This is why we only offer MYGAs and not traditional fixed annuities.


You should make a list of every fee the annuity has.  MYGAs, SPIAs, and DIA’s don’t have fees. Index and variable annuities can so do your research.

Confirm in writing what your fees are.

If your insurance agent is unwilling to disclose the fees in writing, find a new agent.

Does the annuity auto-renew?

Like bank CDs, most annuities will auto-renew if you don’t do anything.

You will usually have a thirty to a sixty-day window to decide what to do. Insurance companies usually mail a letter to inform you of the maturity.

Your existing carrier usually offers a rate if you decide to keep the money with them. You are free to accept their offer or to move the money to another firm if you wish.

Surrender charges and market value adjustments are waived at maturity.

We help our clients keep track of their maturities. We will proactively contact you, so maturity does not surprise you.

Before the annuity matures, use our fixed annuity database. It will help you determine if better rates are available in the marketplace.

You might want to transfer the annuity to another product paying a higher rate.

Surrender Fees

Our website displays the surrender schedule for each other annuities we offer and those we review.

Some companies talk more about the benefits of the products than the fee schedule.

It’s essential to know any possible penalties before buying an annuity.

The surrender schedule is a penalty assessed for withdrawals.  The penalty declines the term of your contract. Your contract might have penalty-free withdraws available.

Also, when the annuity matures, the penalty goes away.

What percentage of your assets are you putting into an annuity?

Some companies try to get you to place a majority of your assets in annuities. The standard advice here is not to put your eggs in one basket.

You want to think about what percentage of your assets you are investing in annuities. Many say you should not have more than 50% of your assets in annuities as a general rule.

Insurance companies have been tightening up the rules for the last 20 years. You should never invest money into an annuity contract you might need to live on.

Does your annuity have a market value adjustment?

Some annuities have a market value adjustment. It’s a way of sharing the interest rate risk with the insurance company.

Since interest rates have been at historic lows. The odds of losing money are much higher than making money with the market value adjustments.

Market value adjustments do not apply at maturity. Also, not every annuity has a market value adjustment.

Fixed annuities with market value adjustments usually pay a higher rate.

The insurance company is protected from some market losses and pays a higher rate.

Bonus Reason - Be very careful with hypothetical illustrations

An expert we trust says she’s never seen an illustration ever come true.

Illustrations for MYGAs, SPIAs, and DIAs are guaranteed values so you can count on the illustrations being valid.

Illustrations for index annuities without income riders and variable annuities go in the “might do” category.

Many illustrations are run, highlighting a much higher return than you should expect to receive in the annuity.

Ex. If an uncapped index annuity might average 3-5% over the annuity contract term, you might see a higher number in the illustration.

Insurance companies can change crediting methods and caps at any time. This affects your potential returns. Choose your company wisely.

Some insurance agents might even suggest the products will earn 7-8%. Run, don’t walk if they suggest this.

Consider a MYGA if you are interested in the highest guaranteed returns. There will be no surprises after purchase. Access the highest fixed annuity (MYGA) rates.