So, before you decide to buy, or walk away, read on for the facts. Annuities are a type of life insurance product.

– Life insurance guards against the risk of dying too soon, while annuities guard against the risk of living too long.

– An annuity is the only financial instrument that can guarantee you a paycheck for the rest of your life, no matter how long you live.

– There are two main types of annuities: deferred annuities and immediate annuities.

– Deferred annuities allow you to defer taking an income until you have accumulated additional earnings.

– Immediate annuities allow you to commence income payments within the first year of the annuity purchase.

– There are two sub-types of annuities: fixed and variable.

– There are also two sub-types of fixed annuities: traditional fixed and fixed-index.

– Fixed and fixed-index annuities are insurance products. Variable annuities are investments.

– You can’t lose money as a result of market performance with fixed and fixed-index annuities.

– Fixed annuities earn interest at a stated rate, which is declared periodically by the insurance company.

– Fixed-index annuities earn limited interest, based on the performance of a stock market index.

– The most common stock market index used as a benchmark of index interest on fixed-index annuities is the S&P 500.

– Fixed-index annuities generally limit the amount of index interest earned via the use of a participation rate, cap rate or spread rate.

– Fixed-index annuities do not allow the purchaser to invest directly in the index.

– Fixed-index annuities are not a “hybrid” of fixed and fixed-index annuities.

– The index-linked interest on fixed-index annuities is provided through an instrument the insurance company purchases, called an “option.”

– Dividends on the S&P 500 (and other indices) are not included in fixed-index annuities’ crediting calculations because the purchaser isn’t actually invested in the index.

– Interest on fixed-index annuities is ALWAYS limited in one way or another, even if the annuity is said to be “uncapped.”

– Fixed-index annuities are NOT intended to provide market-like performance.

– Fixed-index annuities do not compete against variable annuities.

– Fixed-index annuities most closely compete with fixed annuities.

– Fixed-index annuities are ONLY intended to outpace fixed annuity earnings by 1% to 2%.

– Surrender charges on deferred annuities protect the insurance company from unanticipated claims.

– Although deferred annuities have surrender charges, most contracts allow the purchaser to take as much as 10% of the annuity’s value out annually without application of these charges.

– Most deferred annuities waive the annuity’s surrender charges in the event of disability, nursing home confinement and/or terminal illness.

– The fixed allocation option of fixed-index annuities generally guarantees at least 1% interest annually.

– The primary determinant of fixed-index annuity rates is the price of the options that are purchased by the insurance company.

– Bond rates and market volatility have an impact on fixed-index annuity rates.

– A Guaranteed Lifetime Withdrawal Benefit (GLWB) rider guarantees annual withdrawals of the annuity’s value, at a specified level, regardless if the contract’s Account Value falls to zero.

– A GLWB rider attached to a fixed-index or fixed annuity may be an alternative to a single premium immediate annuity (SPIA) when the holding period before income payments begin is greater than one year.

–This article shares excerpts from 100 facts people need to know about annuities by Sheryl J. Moore of Moore Market Intelligence.

I hope you have found these facts about annuities helpful and I leave you with the following:

“Minds are like parachutes – they only function when open” – Thomas Dewar, 1st Baron Dewar, was a Scottish whiskey distiller

 “All financial advice is conflicted – the business model exerts its effects” – John Rekenthaler, columnist for Morningstar.com and a member of Morningstar’s investment research department

— Bill Borton