Various Types Of Annuity Insurance

Fixed Annuity

Fixed annuities are interest-based vehicles similar to bank-issued CDs, but geared specifically towards retirement savings. Typically, a lump-sum of cash locks in an interest rate ranging from 3% to 10% for a period of 3 to 15 years. The initial deposit — otherwise called the premium — can range from $5,000 to $1,000,000.

Fixed annuities are very low risk, have more liquidity than CDs, are tax-deferred, and typically offer higher yields than bonds, CDs, treasuries, or money market accounts.

Variable Annuity

Variable annuities are long term investments. The longer you let your money build, the more you are likely to gain from it. However, unlike a fixed annuity (where your money sits in an account from which you are paid a fixed income throughout a fixed period), a variable annuity gives you more control over your investment–but also gives you the burden of risk.

Equity Indexed Annuity

An equity indexed annuity is an insurance contract linked to a common market index, such as the S&P 500. If the index grows you're entitled to a majority of the earnings. If the index declines, you're account is protected against losses with a modest baseline rate.

Index annuities are a hybrid between fixed and variable annuities. They're typically invested into with a single up front payment. Unlike fixed annuities, index annuity rates vary based on market performance, and unlike variable annuities, you're typically covered against losses. Growth potential for index annuities is strong, averaging 10-15%, on up years, and 1-3% on down. Unlike variable annuities, index annuities allow you to participate in the market without ever risking principle.

7 Best Annuities to Guarantee Income for Life

You probably don't lie awake at night worrying that you'll live too long. But maybe you should. The biggest financial risk retirees face isn't volatile investment returns — it's longevity. Will your money last as long as you do?

In a world of increasing life spans, disappearing pensions, and crashing markets,immediate annuities almost look sexy. An immediate annuity is an insurance policy against a man-made disaster: that you run out of cash. You give the insurer a chunk of change, and, in exchange, you receive a contracted amount every month for the rest of your life, like a pension. (The monthly payout is net of the fees the insurer keeps.) The longer you live, the better the deal is for you. But buying an annuity requires faith that the insurer will be financially sound enough to make the payouts for decades. And once you purchase an annuity, you generally can’t change your mind, at least not without paying a hefty penalty.

That’s why MoneyWatch did a rigorous analysis of more than 100 insurers to find the seven sturdiest ones paying the most.

You do have some protection — state life insurance guaranty funds rescue annuitants when insurers go belly-up, with the equivalent of federal deposit insurance. But most state guaranty funds limit payouts to $100,000. That’s why you shouldn’t invest more than $100,000 with any single annuity company. Since a $100,000 annuity will only provide about $9,000 a year for a 70-year-old, you may want to buy multiple annuities from assorted safe companies, says Hersh Stern, publisher of Annuity Shopper and ImmediateAnnuities.com.

How We Chose the Best Annuities

Our methodology: First, we eliminated insurers that don’t offer immediate annuities in most states. Next, we axed ones with ratings below A for financial safety from Moody’s, Standard & Poor’s, and A.M. Best. (Not all ratings companies rate all insurers; if an insurer didn’t have ratings from at least two of these services, it was dropped.) To be conservative, we then screened the remaining insurers through the more critical lens of TheStreet.com, which grades insurers the way you were judged in school. A’s are rare; C’s are average. To make our best-annuities list, a company had to have a TheStreet.com rating of at least a B-.

Once we had our safe-insurers list, we then ranked them by the size of their monthly payouts. To do this, we needed to create a hypothetical annuitant, since the size of the checks hinges on the insurer’s calculation of how long you’ll live, plus some other factors. We chose a 70-year-old man investing $100,000. (If you’re under 70 or a woman, your payout would be less than the figures below, since insurers expect you’ll live longer and collect more payments. Conversely, an 80-year-old would get larger payments.) Although some analysts recommend inflation-adjusted annuities, we didn’t shop for them because many companies no longer sell these products, and those that do would charge our man about $150 a month for the privilege. There are a host of other options, too, such as a guarantee that the checks will last for your spouse’s lifetime as well, but each extra benefit results in a smaller monthly payout.

How to Buy the Annuities

Two insurers on our list, USAA and MetLife, sell annuities themselves, but the others require you to go through their authorized agent, ImmediateAnnuities.com or AnnuityAdvantage.com. Those two sites are also useful if you want to set your own criteria and find annuities that meet it. But if you plan to go this route, check with financially sound USAA and MetLife for their immediate annuity rates, too.

The Best Immediate Annuities

We ranked insurers according to the size of the monthly lifetime payout for our 70-year-old man. Just in case you’re looking for only a few years of payments — maybe to hold you over until your pension kicks in — we also note each insurer’s 5-year payouts for the 70-year-old. Prefer to stick with the very safest company on this list? Then drop down to No. 5, USAA, which gets the highest financial-soundness grades from all the raters and also happens to offer the most generous 5-year payments.

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