What is an Annuity quote?

Written by Hersh Stern Updated Thursday, July 2, 2015

annuity quotes

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 insurance 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.

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If you are in the market to purchase an immediate or a deferred income annuity be sure to get your free list of the top 10 quotes. By comparing rates you'll find the annuity with the highest income.

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 Income Annuity Quotes

A deferred-income annuity (sometimes called a longevity annuity) combines the features of the above two annuities: immediate and deferred annuities. A deferred income annuity has both a growth period and an income distribution period. Essentially, with a deferred income annuity quote, you are shown the amount of income to be received at a future date. Purchasing a deferred income annuity contract usually defers income anywhere between three to thirty years from the time of purchase.

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If you die before 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.

3. Deferred Annuity Quotes ("Fixed" Version)

A deferrred 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.

Today's Best
Multi Year Annuities

Click here for the complete
Deferred Annuity table
Company / Product Rate Yrs.
Sentinel Security LifePersonal Choice Annuity 103.40%10
Oxford LifeMulti-Select 9 Annuity3.15%9
Oxford LifeMulti-Select 8 Annuity3.10%8
Oxford LifeMulti-Select 7 Annuity3.05%7
American NationalPalladium MYG Annuity 62.80%6
Sentinel Security LifePersonal Choice Annuity 53.10%5
Oxford LifeMulti-Select 4 Annuity2.05%4

This is a table illustrating today's top interest rates for deferred annuities. The table lists the name of the insurance company, annual effective yield, and the number of years for which the yields are guaranteed. To learn more about deferred annuities click any line in the chart or call 800-872-6684 for quick answers.

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.

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 (SMA), 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.

Today's Best
Secondary Market Annuities

Click here for the complete
Secondary Market Annuity table
Company Start Date Rate Cost
Prudential2015-09-014.50%$50,514
Prudential Life2015-09-104.34%$97,118
Hartford2015-10-284.35%$628,149
AIG2016-01-024.08%$295,545
NY Life2016-01-044.54%$113,284
Allstate2016-03-234.00%$190,254
Metlife2016-05-284.00%$57,133

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.

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I was shopping for an annuity with my Fidelity IRA. I was most impressed that the quotes on ImmediateAnnuities.com were higher than the ones Fidelity gave me. They also were very patient and answered all my questions. I felt like they were truly interested in helping me. I definitely recommend this website.
Betty Rogers
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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.

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Comments (20)

  1. John Hunter:
    Nov 06, 2014 at 12:36 PM

    Can you update the quotes you sent me yesterday with a 15 year period certain payout based on 100k?

    John

  2. Hersh Stern:
    Nov 06, 2014 at 12:39 PM

    Hi Bill-

    I am responding to your request for updated quotes for a “15 year period certain payout” with two sets of numbers because the phrase “15 year period certain payout” can be interpreted in two different ways. I wanted to be sure you knew the difference between them.

    When you initially requested quotes at our website, you checked the box for a Single Life annuity with 15 Years Certain. That’s the type I previously sent you quotes for. A life with 15 years annuity provides the following benefit:

    You receive income for as long as you are living, even after the 15 year period ends. If you should die before the end of the 15 years, payments continue to your beneficiaries until the end of the 15th year. Payments stop only upon your death after the end of the 15th year.

    There is a second type of 15 year immediate annuity which DOES NOT pay for your lifetime. It is called a “15 Year Period Certain” annuity (your exact wording) which has the following definition:

    You receive income only for 15 years. If you should die before the end of the 15 years, payments continue to your beneficiaries until the end of the 15th year.

    But if you live longer than the 15 years you will not receive further income. This income stream ends exactly at the 15 year mark.

    At age 64 your life expectancy is longer than 15 years. So when you compare quotes for the two types of 15 year annuities you find that the 15 Year Period Certain annuity gives you more income per month than the Single Life annuity with 15 Years Certain would give you. That’s because the insurance company expects to make fewer payments to you in a 15 Year Period Certain annuity than it does if your annuity was set up to pay you for life, even if lived longer than 15 years (which the actuarial tables say you will).

    So to cover all bases, I sent you quotes for both types which you can compare to find the one that is more suitable to your financial goals.

    I hope I’ve made myself clear. Please contact me again if you have any questions about these annuities.

    Sincerely,


    Hersh

  3. John:
    Mar 11, 2015 at 03:42 PM

    I am researching annuities to see if they will work for me. I requested quotes at this web site. Are these the best that you have?

  4. Hersh Stern:
    Mar 11, 2015 at 03:44 PM

    Hi John-

    Good to hear from you, too.

    The quotes we sent you were for an IMMEDIATE annuity (lifetime annuity with payments starting immediately and with beneficiary payments if you died before the end of 10th year). There were prices from 16 companies.

    You asked: Are these the best rates?

    They are if you’re looking to buy an IMMEDIATE annuity.

    But depending on what you are trying to accomplish there may be other types of annuities with higher interest rates.

    For example--

    INDEX or HYBRID annuities can pay you as much as 8% a year. See here:

    https://www.immediateannuities.com/fixed-index-annuities/

    SECONDARY MARKET ANNUITIES can pay you up to 6% a year. See here:

    https://www.immediateannuities.com/secondary-market-annuities/?smaSort=rate

    Perhaps one of these annuities will better satisfy your retirement goals. Email me if you’d like more info.

    Hersh

  5. Owen:
    May 15, 2015 at 02:35 PM

    Your company emailed me quotes for a $500k period certain immediate annuity for 10 years. I calculated the annuity internal interest rate and it was less than rate I can get on a 10-year Treasury Note. Why is that?

  6. Hersh Stern:
    May 15, 2015 at 02:37 PM

    Hi Owen-

    The interest rate on a 10-year immediate annuity is lower than the rate on a 10-year bond for one important reason: When you invest $500k in 10-year treasury bonds you relinquish control over the $500k for all 10 years. In other words, the U.S. Treasury has the full use of the full $500k for all 10 years.

    When you buy a $500k 10-year period certain annuity from a life insurance company, the company does NOT have the full use of your $500k for the full 10 years. It cannot invest the $500k in a 10-year investment, because beginning with the first month on, the company has promised to pay you some of your $500k each month.

    If you did the math you’d find that the insurer only has on hand, on average, $250k (half your premium). You’re right that the company starts with $500k in the first month but from that point forward each month the premium held by the company is reduced until the amount on hand reaches $0 at the end of the 10th year.

    Looking at this another way, a 10-year $500k period certain annuity (which amortizes the $500k evenly over 10 years) is really the mathematical equivalent of a 5-year investment with a constant value of $500k.

    You know that interest rates on shorter term bonds (for example, 5 year T-notes) are considerably lower than interest rates on longer 10 year bonds. This explains some of the differences in underlying interest rates between a 10-year Treasury note and a 10-year immediate annuity.

    Hersh

  7. John:
    Jun 22, 2015 at 02:49 PM

    If I use my traditional IRA funds to buy a single premium immediate annuity do I pay tax when I withdraw money to buy the annuity? Is there a transition option to keep the money tax deferred?

  8. Hersh Stern:
    Jun 22, 2015 at 02:50 PM

    Hi John-

    You can freely transfer money from your IRA to the insurance company. There is no tax due. The transfer is tax-free because the insurance company sets up a Traditional IRA account to receive the money. So this is really an IRA-to-IRA transfer.

    I’ve written a blog article about this topic here:
    https://www.immediateannuities.com/roll-over-ira-or-401k/

    -Hersh

  9. Sam:
    Jun 24, 2015 at 11:45 AM

    I prefer annuities which allow early withdrawal. Is that available with immediate annuities?

  10. Hersh Stern:
    Jun 24, 2015 at 11:45 AM

    Hi Sam,

    On the quote spreadsheet we sent you you’ll find small footnotes next to each company’s name. Any company that has footnote number “5” allows for limited cash withdrawals. These companies include MetLife, New York Life, and Principal Financial, among others.

    -Hersh

  11. Ulrich:
    Jun 24, 2015 at 11:46 AM

    Thanks for your quotes. Do these numbers include ALL costs related to the annuity including commissions and fees?

  12. Hersh Stern:
    Jun 24, 2015 at 11:47 AM

    Hi Ulrich-

    Immediate annuities and deferred income annuities do not charge fees. The commissions that we receive as agents are already built into your quotes for these types of annuities. Therefore, the quotes we sent you represented the exact dollar amounts you will receive.

    I’ve written a more detailed article on annuity commissions here:

    https://www.immediateannuities.com/annuity-commissions/

    -Hersh

  13. Colleen:
    Jul 24, 2015 at 12:17 PM

    I received your list of annuity quotes. What % payouts are these companies paying?

  14. Hersh Stern:
    Jul 24, 2015 at 12:42 PM

    Hi Colleen-

    You asked about the payout percentages for the different companies in your list.

    For this type of annuity called an “immediate annuity” which pays you for as long as you’re living, the ultimate rate of return will depend on how long you lived and how many monthly payment checks you received. So that is not really knowable up front.

    I can give you a few estimates based on your life expectancy.

    At your age if you purchased the Minnesota Life annuity which was paying the highest amount on our list ($682 a month) and you lived to your normal life expectancy of 15.2 years, your rate of return would have been 2.80%.

    If you lived for 5 years longer, for a total of 20 years, then your return would have increased to 5.40%.

    Of course, if you selected a life only annuity and died after only 10 years then your return would have been negative.

    If you would rather guarantee yourself (and your beneficiaries) a definite interest rate return then you might consider a so-called period certain (“term certain”) annuity which paid a minimum of, say, 20 years. That interest rate would be 3.00% regardless of how long or short you lived.

    Hersh

  15. Pete:
    Jul 27, 2015 at 08:31 AM

    I got your quote, but it didn't seem competitive. I’m retiring from Lucent Technologies and they are offering me a lump sum pension buyout of $437,003.66. Alternatively they offered me a single life annuity of $3,858 per month. Your quotes we’re less. Why?

  16. Hersh Stern:
    Jul 27, 2015 at 08:32 AM

    Hi Pete-

    It makes perfect sense that Lucent’s subsidized annuity will pay you more per month than the amount you would get if you applied the $437k premium to an insurance company annuity. Here’s why:

    For the past 40 years, since ERISA was enacted in 1974, the vast majority of retirees who are offered a lump sum buyout vs. a monthly annuity, take the cash. These retirees want the cash to be able to invest in stocks or real estate, to pay down a mortgage, to take a vacation, to make home improvements, etc., etc.

    This is a well-known, well-studied tendency. So Lucent fully expects its retirees also to opt for the cash. Under ERISA (which is the law governing how to calculate a lump sum equivalent of a lifetime monthly income) a corporation is permitted to use certain above-market interest rates or discount rates when making this calculation.

    The upshot is that Lucent can use a higher than normal interest or discount rate to calculate the lump sum it owes you. Using a HIGH discount rate causes your lump sum amount to be SMALLER. Lucent knows this and since most of its employees will take the cash it’s cheaper for Lucent to pay out lesser lump sums many times than the cost of an occasional employee electing to stay with the annuity. That’s also why your $437k is just not enough premium to cover the same monthly income Lucent is quoting you. Lucent is actually subsidizing your monthly payments.

    Hersh

  17. Phil:
    Jul 27, 2015 at 08:34 AM

    I have an IRA. I want to buy an immediate annuity and start receiving income at the beginning of the coming year so I don’t pay any taxes on it this year. When should I contact you?

  18. Hersh Stern:
    Jul 27, 2015 at 08:36 AM

    Hi Phil-

    Since the new year is more than six months away my first suggestion is that you continue to visit our website every two months or so and generate exact company quotes so you get a feel for the direction interest rates are taking.

    Regarding your question about when to start the process -- Keep in mind that your first month’s payment will not be issued to you by the company until 30 days after it receives your premium. So depending on when you’d like to get that first payment, subtract one month from that date to cover the waiting period. Then allow another 2-3 weeks for the time it usually takes to transfer money from one custodian to another. This gives you a conservative planning horizon of about two months from start to finish.

    So if you wanted to receive your first payment, say, on January 2nd, then you’ll need to begin the application process in early November.

    It’s also important to know that most insurance companies give you a 60 day “rate lock” or grace period from when they receive your application to when the premium needs to be in-house. During that period even if interest rates drop, your annuity will be credited with the initial higher rate. Think of it like a mortgage commitment letter from a bank that gives you 30 days to close on a home while guaranteeing a specific interest rate.

    Hersh

  19. Brian:
    Jul 28, 2015 at 12:58 PM

    I received your quote package in the mail Saturday. It was excellent. I also requested quotes from two other sources, all for a New York Life 10 Year Period Certain annuity. So far, I have received one of them with a large difference in the monthly payout than yours. Shouldn’t they all be the same? Why aren't they?

  20. Hersh Stern:
    Jul 28, 2015 at 01:01 PM

    Hi Brian-

    It’s difficult to know without looking at the official NYL illustrations. Generally, NYL quotes should be the same for the same premium and payment options. I’ll guess at some possible explanations:

    1. Are the quotes for the same payment options? Some agents may confuse a 10 year period certain annuity with a LIFE and 10 year certain annuity. The latter will pay you much less per month because at your age the expected payment period extends considerably past the initial 10 years.

    2. The quotes were not generated on the same day. When did you receive the other quotes? Since NYL changes its rates every so often, yesterday’s quote may not be the same as tomorrow’s if NYL made an internal adjustment to its interest rates in between.

    3. Are the start dates the same? The NYL quotes I sent you assumed a start date one month following purchase.

    Sometimes an agent may play tricks with the dates when they know a buyer is comparing quotes across different platforms or sources. For example, it’s possible to make the income figure appear a little higher by delaying the start date. I’ll explain.

    Imagine I sent you a quote with a purchase date today but an income start date a year from now. Your monthly income would be several percentage points higher than my first quote because NYL would be crediting your premium with a full year’s delayed interest.

    Now I’d be shocked if the other quoter changed the start date by a year. But if he or she just fudged the start date by a week or two their quote would be a $5-$10 dollars higher than ours. Of course that would just be smoke and mirrors and not really giving you a better deal. But many consumers wouldn’t understand this. They’d think they’re getting a better quote.

    4. Did both sets of quotes assume your correct state of residence? Sometimes if the state of issue is different it can change the quote.

    5. Did both quotes correctly assume the tax status of your premium to be “qualified” money. Ours did since that’s what you told us online.

    Hersh