An annuity is one of the few financial products you can't easily undo. Once you sign and the surrender clock starts, getting out can cost real money. So the smartest thing you can do before you buy is ask hard questions — and write the answers down.
What to ask before you sign an annuity contract
Before you sign, get clear answers to 11 questions — covering fees, the surrender schedule, how the agent is paid, what's guaranteed versus merely illustrated, and how you get your money out — in writing. A good agent or advisor will welcome every one of these. Anyone who gets defensive, vague, or rushed is telling you something. Below is the list, with why each question matters and what a solid answer actually sounds like.
1. What type of annuity is this, exactly?
Why it matters: "Annuity" covers wildly different products. A MYGA (a fixed annuity) is a CD-like savings vehicle. A fixed indexed annuity links growth to a market index with a cap. A variable annuity puts your money in subaccounts that can lose value. An income annuity converts a lump sum into a lifetime paycheck. They behave nothing alike, so "it's an annuity" is not an answer.
What a good answer sounds like: A plain-English label and category — "This is a 5-year multi-year guaranteed annuity, a fixed product" — not a brand name dressed up as a strategy. If you're not sure what the categories mean, the glossary and our what is an annuity primer are worth a read first.
2. What is guaranteed versus what is just illustrated?
Why it matters: Sales illustrations love to show hypothetical returns in bold numbers. Those projections are not promises. The guaranteed column — the minimum the contract will do no matter what — is the only part the insurer is legally bound to.
What a good answer sounds like: The agent points to the guaranteed values in the contract and clearly separates them from the hypothetical or illustrated ones. If someone leads with a big illustrated return and waves off the guarantee, that's a flag.
3. What are the total fees, every single one?
Why it matters: Some annuities (most MYGAs) have no explicit annual fee. Others — variable and many indexed contracts — stack mortality and expense charges, administrative fees, subaccount fees, and rider charges that can add up to 2% to 4% per year. Fees quietly compound against you for the life of the contract.
What a good answer sounds like: A specific, itemized list — base contract fee, rider fees, fund expenses — with a total. "There are no ongoing fees on this one" is a perfectly good answer for a MYGA; "it's hard to say" is not.
4. What's the surrender schedule, and what does it cost to get out early?
Why it matters: Most deferred annuities lock your money for a set number of years. Withdraw more than the free amount during that window and you pay a surrender charge — often starting at 7% to 10% and stepping down over time. A market value adjustment can add to (or subtract from) that.
What a good answer sounds like: A clear year-by-year schedule: "10% in year one, declining one point a year, gone after seven years." You should be able to see the exact penalty for cashing out in any given year before you sign.
5. How and when can I access my money?
Why it matters: Even inside the surrender period, most contracts let you take a penalty-free withdrawal each year — commonly 10% of the value. Knowing your liquidity options matters if an emergency hits or your plans change.
What a good answer sounds like: Specifics on the free-withdrawal amount, when it starts, how required minimum distributions are handled, and what waivers exist (many contracts waive surrender charges for nursing-home confinement or terminal illness). Vague reassurance that "you can always get your money" is not specific enough.
6. How are you paid, and how much?
Why it matters: Most annuities pay the selling agent a one-time commission — typically 1% to 7% of your premium, paid by the insurer. That doesn't come out of your account directly, but it absolutely shapes which products get recommended. A bigger commission on a more complex product is a real conflict of interest, and you deserve to know it's there. Our piece on how annuity commissions work breaks down the ranges by product type.
What a good answer sounds like: A direct number or range and how the structure works — "I'm paid a commission by the carrier, roughly X% on this product." Fee-only advisors will tell you they charge you directly and use commission-free contracts. Either model can be fine. Dodging the question is not.
7. Why this product and this carrier, instead of others?
Why it matters: A good recommendation comes from comparison, not from whatever one company the agent happens to represent. If an advisor only ever shows you a single carrier, you have no way to know whether the rate or terms are competitive.
What a good answer sounds like: A reason grounded in your situation and a comparison — "Among the carriers I shopped, this one had the best 5-year rate for your state and a strong financial rating." You can sanity-check that yourself against current rates and our product reviews.
8. How financially strong is the insurance company?
Why it matters: An annuity guarantee is only as good as the insurer behind it. There's no FDIC backing — payments depend on the carrier's ability to pay claims for decades, backstopped only by your state guaranty association up to a limit. Financial strength ratings (from AM Best, S&P, Moody's) are the proxy for that durability.
What a good answer sounds like: Specific ratings from at least one major agency and a sense of the carrier's size and track record. "It's a big, well-known company" is not a rating.
9. What does this product NOT do well?
Why it matters: Every annuity involves a tradeoff — you give up liquidity, growth, or both in exchange for guarantees. An honest advisor can name the downside out loud. Someone who insists the product has no drawbacks is selling, not advising.
What a good answer sounds like: A candid tradeoff — "Your money is tied up for seven years, and if rates rise you're locked in below them" or "the cap limits your upside in a strong market year." Hearing the cons spoken plainly is one of the best signs you're working with someone trustworthy.
10. How does this fit the rest of my financial picture?
Why it matters: An annuity should solve a specific problem — covering essential expenses, protecting principal, deferring taxes — within your broader plan. Buying one in isolation, or putting too large a share of your savings into a single illiquid contract, is a common and costly mistake.
What a good answer sounds like: A recommendation tied to your income, expenses, time horizon, and existing accounts — and a reason this is the right slice of your money, not all of it. If the pitch ignores everything else you own, slow down.
11. Can I have all of this in writing before I decide?
Why it matters: Verbal promises evaporate. The contract, the fee disclosure, the surrender schedule, and the commission answer should all exist on paper so you can review them — ideally during your free-look period, the 10-to-30-day window after purchase when you can cancel for a full refund.
What a good answer sounds like: An immediate yes, plus the actual documents. Anyone who pressures you to sign today, before you've read anything, has given you your real answer to every other question on this list.
How to use this list
You don't need to fire all 11 questions off like an interrogation. Bring the list to the conversation, take notes, and pay as much attention to *how* the answers come as to the answers themselves. The pattern matters more than any single reply.
A few practical tips:
- Get the surrender schedule, the fees, and the commission answer in writing. These three are where buyers get surprised most often.
- Compare the recommendation against something. Look at live rates and independent reviews so you know whether what you're being shown is actually competitive.
- Use the free-look period. Even after you sign, you have a window to read everything carefully and back out. Don't waste it.
- Notice the green and red flags. An advisor who answers all 11 willingly, shows multiple carriers, and names the downsides is a good sign. Our guide on how to find a good annuity advisor goes deeper on telling the two apart.
The goal isn't to talk yourself out of an annuity, or into one. It's to make sure that whatever you decide, you decided it with clear eyes — knowing exactly what you're getting, what you're giving up, and what it costs. If the answers hold up across all 11 questions, you're in a strong position. If they don't, that's your signal to keep looking.