The 7-Question Annuity Audit

Whether you are being pitched an annuity for the first time or you already own one and want to check whether it is still the right one, ask these seven questions.

If your agent can’t or won’t answer any of them clearly, do not sign. Or if you already own it, get a second opinion.

Question 1. What type of annuity is this?

MYGA, SPIA, fixed index, variable, or something else? You should be able to say the type out loud in one sentence. If the agent can’t tell you plainly, or if they use jargon you don’t understand, ask again in plain English.

Question 2. What is the surrender period, and what is the schedule?

You should know: how many years, and what the surrender charge is in each year. Write it down. Look at it against your actual timeline.

Question 3. What are ALL the fees?

Mortality and expense charges, rider fees, investment fees, administrative fees. All of them, added together, as a total annual percentage of your account balance. If the agent gives you a number under 1% on a variable annuity, they are not telling you the whole picture.

Question 4. What is the carrier’s rating?

Look for A.M. Best rated A- or better. If you’re being sold an annuity from a company rated B or lower, ask why.

Question 5. What is the guaranteed minimum vs. the “hypothetical” number the agent is showing me?

Every annuity has a guaranteed minimum (what you are contractually promised no matter what) and a “hypothetical” or “projected” number based on assumed market performance. Illustrations often lead with the projected number because it looks bigger. Ask to see both. The one you can count on is the guaranteed minimum.

Question 6. What happens if I need the money in year 2? Year 5? Year 10?

Walk through the exact numbers. What can I withdraw without penalty each year? What is the surrender charge if I cash out entirely? Is there a Section 1035 exchange option if I want to move to a different annuity?

Question 7. What commission is the agent making on this product?

You are legally entitled to ask. Any agent who refuses to answer is not the agent you want. If the answer is uncomfortable, ask them what other similar products exist and what they pay in comparison.

Bonus question

Ask, “If this was your mother’s money, is this the exact product you would put her in?” Watch their face.

This is exactly what we do in the free audit at annuityaudit.co. If you don’t want to have this conversation yourself, we’ll have it for you.