The Oregon Insurance Division has several excellent publications, including this one on annuities: http://www.cbs.state.or.us/ins/publications/consumer/3494.pdf
Here is one page of it, to save you the trouble. See my remarks interspersed:
Annuity sales to senior citizens have
increased significantly in recent years.
However, as annuity sales have risen, so has a
sense of confusion among consumers. This is
due, in part, to questionable or deceptive sales
practices by insurance companies and agents
looking to take advantage of consumers.
When considering buying an annuity, it’s
important to take precautions and arm
yourself with information so you can make
the best decision.
What is an annuity?
An annuity is a contract in which an insurance
company pays you income at regular intervals
in return for premium payments.
Well, that’s a rather old definition of annuity, the literal meaning of “annuity”. But the income can be deferred as long as you wish with the better products.
Annuities are most often bought for retirement and can pay a
guaranteed income as long as you live.
What are the different kinds of annuities?
There are several types of annuities, which carry
varying levels of risk and guarantees. To get the
most out of an annuity, it is important to know
the options available and the benefits each
• Single Premium Annuity: An annuity in
which you pay the insurance company only
one premium payment.
• Multiple Premium Annuity: An annuity in
which you pay the insurance company
multiple premium payments.
• Immediate Annuity: An annuity in which
you begin to receive income payments no later
than one year after you pay the premium.
• Deferred Annuity: An annuity in which
you begin to receive income payments
many years later. Or not at all, at your option.
• Fixed Annuity: An annuity in which your
money, less any applicable charges, earns
interest at rates determined by the insurance
company or in a way specified in the
• Variable Annuity: An annuity in which the
insurance company invests your money, less
any applicable charges, into a separate
account based upon the risk you want to take.
The money can be invested in stocks, bonds,
or other investments. If the fund does not
do well, you may lose some or all of
• Equity-Indexed Annuity: A variation of
a fixed annuity in which the interest rate
is based on an outside index, such as a
stock market index. The annuity pays a
base return, but it may be higher if the
Is an annuity right for you?
To find out if an annuity is right for you, think
about your financial goals. Analyze how much
money you are willing to invest and how much
risk you are willing to take.
Oregon law prohibits sellers from recommending
the sale or replacement of annuities unless
they make a reasonable inquiry about your
insurance objectives, financial situation and
needs, age, and other relevant information.
Be aware that annuities are not liquid and may
tie up your money for several years. This is misleading.
virtually all annuity contracts give you 10% liquidity,
or more, after 12 months. If you feel there is any
possible need for 100% liquidity within 10 years, then
that money does not belong in an annuity. If you get
out of an annuity in the first few years, the surrender
charges and penalties may cause you to
lose a significant portion of your investment.
Also, the commission a salesperson receives
may be taken directly out of your principal,
causing a net loss for the first few years of
your investment. This isn’t really true anymore.
You shouldn’t buy an annuity that deducts commissions
from your principal.
Contact your tax professional to determine
any negative consequences of buying or
switching to an annuity from another type
of investment; or if the annuity interferes
with your eligibility for medical care or
housing assistance. This is good advice,
but in many cases an annuity can actually help