How to Buy an Annuity: The Steps From Decision to Purchase

You buy an annuity directly from an insurance company, usually through a financial advisor or broker

An annuity is a contract you purchase from an insurance company that pays you a stream of income — either when ready or at a later date. You do not get an annuity from a government program or employer benefit (though some employers offer them as part of a retirement plan). You buy one by contacting an insurance company or working with a financial advisor who sells them.

The process is simpler than explore for a loan but more involved than buying a stock. You will need to provide financial information, choose the type of annuity that fits your situation, decide how much money to put in, and sign a contract. The whole process typically takes one to three weeks from first conversation to funding.

Key Takeaways

• You purchase an annuity from an insurance company, either directly or through a financial advisor or broker who represents multiple companies.
• The main types are when ready annuities (you start receiving payments right away) and deferred annuities (payments begin later), each with different costs and uses.
• You will need to provide your age, health history, income information, and the amount of money you want to invest.
• The insurance company will underwrite your process, which means they review your information to set your payment amount and confirm you meet their requirements.
• Once approved, you fund the contract by transferring money from a bank account, rolling over a retirement account, or sending a check.

Decide what type of annuity matches your situation

The two broad categories are when ready annuities and deferred annuities. An when ready annuity starts paying you within a year of purchase — often within 30 days. You give the insurance company a lump sum of money (typically $50,000 to $500,000, though minimums vary by company), and they calculate a monthly or annual payment based on your age, the payment term you choose, and current interest rates. This is the simpler path if you need income now.

A deferred annuity is money you invest today that grows over time and begins paying you at a future date you choose — often at retirement. The insurance company credits interest to your account during the growth phase. Deferred annuities are more complex because they come in several subtypes (fixed, variable, indexed), each with different growth potential and costs. Choose this path if you have years before you need the income and want to let your money grow.

Within each category, you will also choose a payout structure: how long the payments last. A life annuity pays you for as long as you live, no matter how long that is. A term-certain annuity pays for a fixed number of years (10, 20, 30 years) and then stops. A joint annuity covers two people and continues paying the survivor after one dies. Life annuities pay less per month than term-certain ones because the insurance company is taking on the risk that you live a very long time.

Gather the information the insurance company will ask for

Before you contact an insurance company or advisor, have these items ready: your date of birth, current age, and health status (some companies ask detailed health questions; others do not). You will also need to state how much money you want to invest and when you want payments to begin. Have your Social Security number available for the process.

If you are rolling money from a retirement account (like an IRA or 401(k)) into an annuity, have your account statements and the contact information for your current custodian. If you are funding from a bank account, have your routing and account numbers. The insurance company will verify your identity and may ask for a copy of your driver's license.

Some companies also ask about your income, assets, and investment experience to make sure the annuity is appropriate for your situation. This is called a suitability review. Be honest in these conversations — the company is checking that you understand what you are buying and that it makes sense for your financial picture.

Work with an advisor or contact insurance companies directly

You have two paths: go through a financial advisor or broker, or contact insurance companies on your own. An advisor can show you quotes from multiple companies and help you compare payout amounts for the same investment. They earn a commission from the insurance company when you buy, which is built into the contract price — you do not pay them separately. The downside is that some advisors push products that pay them higher commissions rather than the ones that pay you the most.

Contacting insurance companies directly (through their websites or phone lines) lets you see their rates without a middleman, but you will only see that one company's options. Major insurance companies that sell annuities directly to consumers include Fidelity, Vanguard, Schwab, and Allianz, though many others exist. If you go direct, get quotes from at least two or three companies to compare.

Whether you use an advisor or go direct, ask for a written quote that shows the monthly or annual payment amount, the total amount you are investing, the payout structure, and any fees or surrender charges. Compare quotes side by side — the same $100,000 investment can produce different monthly payments depending on the company and the exact terms you choose.

Submit your process and wait for underwriting

Once you have chosen a company and a product, you will fill out an process. This is usually done online, by phone, or on paper, depending on the company. The process asks for your personal information, health history, and financial details. Some companies require a medical exam for larger investments or if you are older; most do not.

After you submit, the insurance company's underwriting team reviews your process. This process typically takes three to ten business days. They are checking that your information is accurate, that you meet any health or age requirements, and that the annuity is appropriate for you. They may contact you with questions or ask for additional documents.

During underwriting, the company also locks in your payment rate. Annuity rates change daily based on interest rates and market conditions, so the rate you see in your quote is only good for a limited time — usually 30 to 60 days. Once underwriting approves you, that rate is may provide for your contract.

Fund your annuity and receive your contract

After approval, you will receive a contract to sign. Read it carefully — it spells out the payment amount, the payout structure, any fees, and the surrender period (the time during which you cannot withdraw money without a penalty). Once you sign and return it, the company will tell you how to send the money.

You can fund an annuity in three ways. A direct transfer moves money from your bank account to the insurance company. A rollover moves money from a retirement account (IRA, 401(k), etc.) directly to the annuity without you touching it — this avoids taxes and penalties. A check can be mailed to the insurance company, though this is slower. Once the company receives your money, it is invested according to your contract terms.

For an when ready annuity, your first payment usually arrives 30 to 60 days after funding. For a deferred annuity, your money begins growing, and payments start on the date you specified in the contract. You will receive a confirmation statement showing your contract details, payment schedule, and account value.

Understand fees and surrender charges before you commit

Annuities have costs that reduce what you earn or receive. An administrative fee is charged annually (usually 0.5% to 1% of your account value) to cover the insurance company's costs. A mortality and expense fee covers the company's risk that you live longer than expected; this is common in variable annuities. Some annuities have surrender charges — penalties if you withdraw money during the first 5 to 10 years. These charges typically start high (6% to 8%) and decline each year.

when ready annuities have lower fees because they are simpler products. Deferred annuities, especially variable ones, can have higher fees because the insurance company is managing your investments over a longer period. Ask the company to show you all fees in writing before you sign. Some companies advertise "no-fee" annuities, but this usually means the fees are lower, not zero — ask what is included.

The fees matter because they come out of your money. A 1% annual fee on a $100,000 deferred annuity costs you $1,000 per year. Over 20 years, that compounds. Compare the total cost across companies, not just the payment amount, to see which annuity truly gives you the most value.

Frequently Asked Questions

Can I change my mind after I buy an annuity?

Most annuities have a free-look period of 10 to 30 days after you receive the contract. During this time, you can cancel and get your money back with no penalty. After that period ends, you are locked in. If you withdraw money early, you will pay surrender charges. Some annuities allow partial withdrawals without penalty after a certain number of years.

What happens to my annuity if the insurance company fails?

Each state has a guaranty fund that protects annuity owners if an insurance company becomes insolvent. Coverage limits vary by state but typically range from $100,000 to $500,000 per owner per company. Buy from well-established, highly rated insurance companies to minimize this risk. You can check a company's financial rating through agencies like A.M. Best or Moody's.

Can I roll an annuity into another annuity later?

Yes, you can exchange one annuity for another through a process called a 1035 exchange, which avoids when ready taxes. However, you will restart the surrender period in the new annuity, and you may pay new fees. Only do this if the new annuity significantly improves your situation. Consult a tax professional before exchanging.

Do I need a financial advisor to buy an annuity?

No, but an advisor can help you compare options and understand the terms. If you use an advisor, make sure they are a fiduciary — meaning they are legally required to act in your best interest, not their own. Ask whether they earn higher commissions from certain products, and get quotes from multiple companies to verify you are getting a competitive rate.

What if I need my money back before payments start?

With a deferred annuity, withdrawing before the payout date usually triggers surrender charges. The amount depends on how many years into the surrender period you are. Some annuities allow you to withdraw a small percentage (5% to 10%) each year without penalty. Read your contract to see what flexibility you have before you buy.