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Understanding Annuities

Other Money & Debt Issues

This article provides information about regulating annuities, types of annuities, as well as other information. This article was provided by The Texas Department of insurance.

What is an annuity?

An annuity is a financial tool for saving money that might increase in value. Annuities can build savings for retirement or to provide an income stream. They can also provide income for your heirs after you die. 

Annuities might not be the best financial investment option for some people. Talk with a financial adviser or financial planner about your needs and goals before buying an annuity.

Regulating annuities

You can buy an annuity from a licensed life insurance agent, insurance company, financial planner, or broker.

The Texas Department of Insurance (TDI) licenses agents and companies that sell annuities in Texas. TDI and the U.S. Securities and Exchange Commission jointly regulate variable annuities. The Financial Industry Regulatory Authority (FINRA) regulates security firms and also licenses agents who sell variable annuities. TDI also works with the Texas State Securities Board on issues involving agents that sell variable annuities.

Make sure any company you’re considering investing with is licensed and financially stable. To verify the license status of an agent or company, call TDI’s Consumer Help Line at 1-800-252-3439 or use the Agent Lookup and Company Lookup features on our website at You can also use the Company Lookup feature to learn a company’s financial rating from an independent rating organization.

Types of annuities

There are two broad categories of annuities:

  • Deferred annuities allow you to save money for retirement or other reasons, while deferring the taxes on your earnings (or contributions if it’s an IRA) until you withdraw the earnings. The deferral of taxes might be an advantage over other investment opportunities.  
  • Immediate annuities allow you to create an income stream of payments for a period of time you choose. For example, if you get money from an inheritance, the sale of property, or life insurance proceeds, you can use the money to set up an immediate annuity to provide you with monthly income payments for the rest of your life.

Both deferred and immediate annuities offer several types of products:

  • Fixed annuities are guaranteed to earn at least a minimum interest rate. They are the lowest financial risk and offer conservative returns.
  • Equity-indexed annuities have the possibility to earn a higher interest rate, but there isn’t a guaranteed minimum interest rate. They are low-to-moderate risk and offer moderate returns.
  • Variable annuities provide choices between sub accounts that are similar to mutual funds. Your earnings potential is higher but there isn’t a guaranteed return. Variable annuities are higher risk because there’s a chance you could lose some or all of your money.

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