What is an annuity quote?
It can be confusing to try to make sense of the different annuity quotes you find on the internet. Partially, that’s because there are at least six (6) different types of annuities. You’ll need to understand how each type works before you can intelligently compare annuity quotes across groups. Even within each category there are additional bells and whistles which distinguish the products offered by competing annuity companies. This makes it almost impossible to compare annuity quotes from different companies across different types of annuities. So what can you do about this problem?
A good place to start would be to acquaint yourself with at least the basic elements of each of the six annuity types. Then you won't mistakenly compare apples and oranges. You will be able to narrow down the type of annuity quote that is most helpful in guiding you to meet your financial goals. This article provides a general overview of the six main categories of annuities, how they work, and how to interpret the quotes which illustrate their performance.
Lastly, please keep in mind that the some of the annuity types mentioned in this article also have both a "fixed" and a "variable" version. Knowing which version you're comparing may help eliminate some of the confusion.
1. Immediate Annuity Quotes ("Fixed" Version)
With a fixed immediate annuity you can set up a steady income stream that you will never outlive no matter what happens to interest rates or the stock market. The payments can be made for your lifetime, for both you and your spouse's lifetimes, for a limited period of time, or for any combination thereof. Payments can be made to your beneficiaries upon your death if that occurred before the guaranteed period of the annuity expired. You can schedule your income to be received monthly, quarterly, or annually.
An immediate annuity purchase typically is irrevocable. When calculating an immediate annuity quote the insurance company actuaries consider your age and gender. The older you are, the higher your annuity income will be. Immediate annuity quotes are unlike other annuity quotes in that the insurance company typically does not disclose the interest rate used in its calculations.
2. Deferred Annuity Quotes ("Fixed" Version)
A deferred annuity is an interest-bearing account similar in many ways to a bank certificate of deposit but not protected by FDIC. Deferred annuities are "manufactured" by insurance companies, not banks. You would typically review a list of deferred annuity quotes if you were interested in purchasing a growth product with a safe, guaranteed annual interest rate.
The number of years for which you can lock in an initial interest rate depends on whether you buy a "multiyear" deferred annuity or a "traditional" fixed interest deferred annuity. With a multiyear annuity you can choose from maturities that range from three to ten years. The interest rate stays in force for the whole period. With a traditional deferred annuity there is a first year interest rate guarantee but the rate in subsequent years is set by the insurance company at its discretion, so long as the future interest rate remains at least above the annuity's so-called floor rate or minimum guaranteed rate. What is usually shown on the internet for a deferred annuity quote is its current interest rate. Generally, the interest rate quoted is higher if you choose a longer growth period. If you should die during the growth period, your account values typically are payable to your beneficiaries.
If you need to withdraw some money from your deferred annuity before the maturity date, you can with most companies, so long as the dollar amount withdrawn is within your annuity's annual allowable withdrawal percent (usually 3% to 10% of the account value). If you withdraw a greater amount your account is assessed a surrender charge. Some companies also waive these charges in event the account owner is confined to a nursing home or is diagnosed with a terminal illness.
A deferred annuity quote or illustration will usually show the amount accumulated in your account at the end of each contract year. Because these are fixed interest rate products, you know up front what your return will be. A deferred annuity quote may also show the surrender charges per year for early withdrawals. Deferred annuity quotes differ from immediate annuity quotes because the rate of return is shown for the former.
3. Longevity Annuity Quotes
A longevity annuity (sometimes called a deferred income annuity) combines the features of the above two annuities: immediate annuities and deferred annuities. A longevity annuity is actually a deferred immediate annuities and has both a growth period and an income distribution period. Essentially, with a longevity annuity quote, you are shown the amount of income to be received at a future date. Purchasing a longevity annuity contract usually defers income anywhere between three to thirty years from the time of purchase.
What happens if you died during the deferral period before income starts? Some contracts provide a type of death benefit to beneficiaries. Others don't. Once income withdrawals begin the same beneficiary options which are available in an immediate annuity are often available with the longevity annuity.
A longevity annuity quote is very similar to an immediate annuity quote. The quote outlines the deferral period, the income option you've chosen, and the amount of fixed monthly (or annual) income you will receive once the payments begin.
4. Secondary Market Annuity Quotes
Sometimes, the recipient of a monthly annuity payment may decide to sell his present or future income stream if he needs instant cash. Such an annuity is referred to as a Secondary Market annuity, where a contractual future cash flow is being sold by its owners in exchange for a lump sum today. There are elements of secondary market annuities which are similar to immediate annuities, for example, when the purchased income stream begins immediately. There are also secondary market annuities which are similar to Longevity annuities, for example, when there is a delay in the income start date for five or ten years.
Secondary market annuity quotes consist of a rate of return, the company the annuity was purchased through, the cost to you, the start date of the payments, and the ultimate amount those payments will be based on. In the chart below is a list of currently available secondary market annuities, showing their rate, start date and purchase price. By clicking on the chart below, you will see the full range of products offered.
5. Fixed Index Annuity Quotes
A fixed index annuity is a growth annuity which is tied to a particular stock index. This is subject to a rate floor and a rate cap. The floor makes sure that no matter how badly the index does in a particular year, you will never suffer a negative return. In other words, even if the S&P dropped 50% your account balance would not show a loss. Your cost for this protection is that the insurance company only passes through to you a percentage of the possible gains in an up year. So a rate cap or participation rate cap, only allows your account to increase up to a certain point, usually between 3% and 7%. Rate caps and participation rates can also be reset each year by the insurance company. All index annuity earnings are tax deferred.
A fixed index annuity quote consists of several hypothetical situations. The illustration may show you by how much your account would have grown between 1995 and today if you have started back then. Again, the market-related performance of your fixed annuity is not guaranteed. This differs from fixed immediate and fixed deferred annuity quotes as those are always guaranteed. On the index annuity quote, you usually will be able to see what the value of your annuity would be if the index performs at its lowest levels, continues at its current levels, and how it has historically performed. A fixed index annuity quote may also include the surrender charges per year if you wanted to withdrawal from the contract before the maturity date.
6. Variable Annuity Quotes
A variable annuity is similar to a fixed index annuity, however, the biggest difference is that your account can drop way below the amount you started with in a variable annuity if the stock market collapses. Instead of being tied to an index, the performance of a variable annuity is tied to particular subaccounts which are tied to various mutual funds. It works similarly to a mutual fund but has certain tax-deferral advantages. You choose subaccounts in which you'd like to invest your premium, and your growth or losses are dependent on how well those funds perform. At the end of each year, maintenance fees and mortality charges are applied, and the account receives the difference between the amount earned and those fees. For instance, if your gain is 5% and the fees amount to 3%, then the growth applied will be 2%.
Variable annuity quotes are similar to fixed index quotes. Illustrations may show you hypothetical performance based on historical market movement. Variable annuity quotes differ from immediate and deferred annuity quotes in the same way as fixed index quotes do, by not showing you a guaranteed rate or amount. These quotes reflect the hypothetical performance of the subaccounts you choose.
Do you have questions about annuities? Get help from our friendly and knowledgeable experts, toll-free. Call 800-872-6684 (Monday-Friday, 9AM-5PM EST). We'd be happy to answer your questions without any sales talk. Or, email your questions here and we'll get back to you by the next business day!
Important Notice: This information is not intended to be a recommendation to purchase an annuity. You should consult with a financial planner to determine if an annuity is a suitable product in your situation. Also, be advised that tax information published at this site is written to support the promotion of annuities. It is based on limited facts and should not be relied upon. You should consult with your own tax and legal advisors for an opinion about what could or should be done in your particular situation.
Monthly Annuity Calculator
This is a monthly annuity calculator. It calculates the amount of monthly income you will receive in return for a specific "Investment" (aka Premium). Premium is the purchase amount you pay to the insurance company. With this calculator you can also find what Premium would be necessary in order to receive a specific monthly income amount. To use the annuity calculator, simply select your age, state, and gender. Enter a dollar amount in only one of the two boxes labeled "Investment" or "Monthly Income." Then, choose an income start date. Click "Calculate" and you will see a table with annuity quotes. Feel free to call 800-872-6684 if you have any questions about annuities or your quotes.