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Understand what an annuity actually is before deciding whether one belongs in your plan

An annuity is an insurance contract issued by an insurance company. It is not a bank account, and it is not right for everyone.

Alemay Business reviews your situation and objectives first, explains the different types of contracts in plain language, assists within applicable licensed authority and coordinates the properly licensed professional when the product, carrier, registration or jurisdiction requires it.

English and Spanish, with a Miami office and virtual service when the product and jurisdiction allow.

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At a glance

Service
Needs review, general annuity education, review of existing contracts and process coordination through properly licensed professionals.
Who it is for
People organizing long-term resources or future income, and owners of existing annuity contracts who want them reviewed.
What we look at
Objectives, time horizon, liquidity, contract type, charges, surrender periods, riders, beneficiaries and guaranteed versus non-guaranteed values.
Getting started
Schedule a consultation or reach out on WhatsApp.

Alemay Business Insurance

What an annuity is, in plain language

An annuity is a contract between a person and an insurance company. The owner commits resources to the contract, and depending on the design of that contract the value may accumulate over time, be converted into a stream of payments, or both. Every feature worth caring about lives inside the contract: the terms, the conditions, the charges and the limitations.

That is also why comparisons to bank products are misleading. Any guarantee in an annuity is a contractual promise from the issuing insurance company, backed by that company's financial strength and claims-paying ability. It is not a deposit, and it is not FDIC insured.

What an annuity is

  • An insurance contract issued by an insurance company
  • A contract with defined terms, conditions, charges and limitations
  • A product that may be used for long-term accumulation, income, or both, depending on its design
  • A contract whose guarantees depend on the issuing insurer's claims-paying ability

What an annuity is not

  • Not a bank deposit and not FDIC insured
  • Not a savings account or a checking account
  • Not a mutual fund or a brokerage account
  • Not a government program and not the same thing as an employer pension
  • Not a product that is appropriate for everyone

The words you will keep hearing

Annuitant
The person whose life certain contract payments are measured against, according to the contract terms.
Contract owner
The person or entity holding certain rights in the annuity, as defined by the contract.
Beneficiary
The person or entity designated to receive certain benefits when the contract conditions are met.
Issuing insurance company
The insurer that issues the annuity and stands behind its contractual guarantees. Those guarantees depend on the insurer's financial strength and claims-paying ability.
Accumulation phase
The stage in which the contract value may grow according to the contract terms, before payments begin.
Income or distribution phase
The stage in which the contract makes payments according to the option elected and the contract terms.

Reasons people ask us about annuities

None of these situations means an annuity is appropriate. They are simply the moments when people want to understand what the product does before anyone tries to sell them one.

You are getting your retirement years organized

You want to think through how certain savings are positioned

You received a lump sum and want to understand your options

You have retirement accounts and want to see how they fit with other decisions

You already own an annuity and want the contract reviewed

You want to review the beneficiaries on an existing contract

You worry about outliving your resources later in life

You sold a business or a property and are weighing alternatives

You were offered an annuity and want to understand it before deciding

You do not understand the charges or the surrender period

You are working through your estate planning

You are not sure an annuity makes sense in your situation at all

The main types of annuity, explained separately

These are different products that behave differently. None of them is categorically better than the others, and what is available to you depends on the product, the carrier, the state and the licensed professional involved. Everything below is general education, not a description of any specific contract you may be offered.

Fixed annuities

The insurance company declares interest according to the contract. What is credited, and for how long, is defined by the contract itself.

  • Interest is declared by the issuing insurance company under the contract
  • There may be a guaranteed rate period, depending on the product
  • Renewal rates after that period are determined by the insurer
  • Surrender charges may apply during the applicable period

A current or initial rate should not be assumed to be permanent. Guarantees are contractual and depend on the issuing insurer's claims-paying ability.

Fixed indexed annuities (FIA)

Interest crediting may be linked to the methodology of one or more external indexes through formulas defined in the contract.

  • Crediting may be linked to the methodology of one or more external indexes
  • This is not a direct investment in an index or in the market
  • Caps may limit the interest credited
  • Participation rates may apply
  • Spreads or other contractual parameters may apply
  • Parameters may change at future renewals according to the contract
  • Contracts include both guaranteed and non-guaranteed values

Index-linked crediting is calculated by contract formulas. The owner does not buy shares of the index and does not receive index returns or dividends.

Variable annuities

Contract value depends on the performance of the investment options selected, which means loss is possible, including loss of principal.

  • Value depends on the performance of the investment options selected
  • Loss is possible, including loss of principal
  • These are registered securities and require the applicable registrations and licenses
  • Contract charges, insurance charges such as mortality and expense charges, and investment option expenses may apply
  • Any evaluation is handled exclusively with the appropriately licensed and registered professional

Variable annuities are covered here for education only. Securities-related recommendations and sales require appropriately registered professionals.

Registered index-linked annuities (RILA)

Results are tied to index methodology with buffer or floor structures and caps defined by the contract.

  • Linked to index methodology with buffer or limiting structures
  • Loss is possible depending on the structure of the contract
  • These are registered securities and require the applicable registrations and licenses
  • Caps, buffers and charges depend on the specific contract

RILAs are also covered here for education only, and any recommendation or sale requires appropriately registered professionals.

Deferred or immediate: when payments begin

This is a separate question from the product type. A contract can be fixed or indexed and still be either deferred or immediate. It is also the point where the accumulation phase and the income phase become easier to picture.

When payments begin

Deferred

At a future date, according to the contract

Immediate

Generally soon after issue, according to the contract

Objective usually evaluated

Deferred

Accumulation with tax deferral and possible future payments

Immediate

Converting a sum into a stream of payments

Growth of the value

Deferred

There may be an accumulation period under the contract terms

Immediate

Typically no meaningful accumulation period

Access to the money

Deferred

Subject to the liquidity and surrender provisions of the contract

Immediate

Payments and their conditions depend on the option elected

Who tends to evaluate it

Deferred

People still organizing resources for the future

Immediate

People looking for periodic payments in the near term

The contract features that decide how an annuity behaves

These are the provisions that most often surprise people later. Whether any of them applies, and on what terms, is determined by the specific contract.

Annuitization

Electing to convert the contract value into a stream of payments under one of the contract's payout options. In certain contracts, once annuitized, the election may be irreversible.

Income riders and GLWB

Certain contracts offer optional living benefits, such as a guaranteed lifetime withdrawal benefit, for an additional charge. The conditions, calculations, elections and limitations depend entirely on the contract.

Benefit base is not cash value

In many contracts, the base used to calculate an income rider benefit is a separate figure from the surrender or cash value available for withdrawal. They should never be read as the same number.

Surrender charges

Many annuities apply a charge if you withdraw more than the amount allowed during an initial period. The length of that period and the percentage applied depend on the contract.

Market value adjustment (MVA)

Certain contracts apply an adjustment, positive or negative, on a surrender during the applicable period. It may increase or reduce the amount received. It does not apply to every product.

Contract bonuses

Some contracts offer an initial bonus. Bonuses usually carry conditions: vesting periods, associated charges, or recapture of the bonus if the contract is surrendered early.

Charges and fees

Depending on the product, there may be administrative or contract charges, rider fees, insurance costs, surrender charges and, in variable products, investment option expenses. All charges reduce the net value of the contract.

Tax deferral

In certain annuities, growth is not reported as income each year but when withdrawals occur, according to applicable tax rules. Deferred does not mean tax free.

What a guarantee in an annuity actually means

Guarantees in an annuity are contractual promises made by the issuing insurance company. They are defined by the contract language, and they are backed by that insurer's financial strength and claims-paying ability. They are not government guarantees and they carry no FDIC insurance.

A contract can also contain guaranteed values and non-guaranteed values at the same time. Illustrations often show both. Reading them apart, rather than together, is one of the most useful things you can do before signing anything.

Worth keeping in mind

  • A guarantee applies only as written in the contract
  • Non-guaranteed elements may change according to the contract terms
  • Surrender charges and adjustments can reduce what you receive
  • Rider values follow their own rules and are not cash value
  • An illustration is a set of assumptions, not a promise of results

Liquidity, surrender charges and withdrawals

Annuities are built as longer-term contracts, and limited liquidity is part of the design rather than a defect. That is exactly why the money committed to a contract should not be the money you may need next year.

How access generally works

  • Annuities are designed as longer-term contracts, not as open-access accounts
  • Many contracts allow a limited free withdrawal amount each year
  • Exceeding that amount may trigger surrender charges under the contract
  • A market value adjustment may apply on certain products during the applicable period
  • Withdrawals may reduce the contract value, the death benefit and any rider values
  • Withdrawals may be taxable and may carry additional tax consequences
  • Not all withdrawals are penalty free, and the specific contract controls

Taxes at a high level

Tax deferral is one of the most misunderstood parts of the conversation. Deferred does not mean tax free, and the treatment that applies to you depends on facts this page cannot know.

When the tax impact matters, we coordinate it with your Personal Tax Preparation as a separate service.

General concepts, not advice

  • The tax treatment of an annuity depends on the contract type, the ownership, the source of the funds and the distributions taken
  • Growth in certain annuities is generally not reported each year, but withdrawals may be taxable when taken
  • Distributions before certain ages may carry additional tax consequences under applicable rules
  • An annuity held inside a tax-qualified account does not create additional tax deferral simply because it is an annuity
  • Beneficiary tax treatment depends on the contract, the funds and applicable law and cannot be stated universally
  • Nothing here is tax advice; when the tax impact matters, it is reviewed with the appropriate tax professional

Suitability and best interest: what the review actually weighs

No page can tell you that an annuity is right for you. Under the applicable state and carrier rules, any recommendation has to be based on your documented situation, and the licensed professional involved is responsible for that analysis.

Your objectives and what you are actually trying to solve

Your age and time horizon

Your liquidity needs and emergency resources

Your income needs, now and later

Your tolerance for risk and for contract restrictions

Other assets, accounts and products you already hold

Existing insurance and annuity contracts

General tax considerations for your situation

Applicable state rules and carrier suitability requirements

Existing contracts, replacements and 1035 exchanges

If you already own an annuity, the first job is understanding what you have. A replacement is a decision with consequences, and a bonus or a headline rate is not a reason to make one.

What we review first

  • The type of annuity you own
  • Issue date and remaining surrender period
  • Current rates and crediting parameters where applicable
  • Charges and any riders elected
  • Guaranteed versus non-guaranteed values
  • Designated beneficiaries
  • Payout options available under the contract
  • How the contract relates to your current situation and objectives

What a replacement or exchange can mean

  • A new surrender period may begin
  • Benefits in the current contract may be lost
  • Surrender charges may apply to the existing contract
  • Rates, parameters, riders and charges in a new contract may be different
  • Replacement suitability must be documented under the applicable rules
  • A bonus or a headline rate is not, by itself, a reason to replace a contract

A 1035 exchange is a tax provision that may apply in certain circumstances. Not every change qualifies, tax conclusions are not given here, and no contract should be surrendered before reviewing surrender charges, existing guarantees, riders, tax implications and the applicable replacement rules.

How Alemay Business helps

01

We understand your situation

Objectives, time horizon, existing resources, contracts already in place and how you relate to risk.

02

We define the need

We look at whether an annuity may be relevant in your case at all, or whether other alternatives should be evaluated first.

03

Options are evaluated

The properly licensed professional reviews available options within the scope of the applicable license, registrations and jurisdiction.

04

We review the contract before anything is signed

Rates, parameters, charges, surrender period, riders, beneficiaries, and guaranteed versus non-guaranteed scenarios, with time for your questions.

05

Application and issuance

We coordinate documentation and the application. The insurance company determines eligibility, final terms and issuance.

06

Follow-up

Alemay stays as your point of coordination for future reviews, beneficiary changes and coordination with your broader planning when relevant.

What the service can include, depending on the case

  • Initial consultation
  • Review of the need before any product conversation
  • Review of existing contracts
  • Clarifying objectives and time horizon
  • Coordination with the properly licensed professional
  • Comparison of the alternatives available through that professional
  • General education about annuity types
  • Review of charges and surrender periods
  • Beneficiary review
  • Estate planning coordination when relevant
  • Document organization
  • Support through the application
  • Coordination with the insurance company
  • Review of the issued contract
  • Follow-up
  • Future reviews when relevant
  • Coordination with partners when another license, registration or authorization is required

Information that helps us review your case

Not everything on this list applies to every situation. Bring what you have; we can work through the rest together, and the insurance company or the licensed professional may request additional information.

  • Name
  • Date of birth
  • State of residence
  • The objectives you want to evaluate
  • Your time horizon
  • The resources you are considering
  • Existing contracts or accounts where relevant
  • Beneficiaries you are considering
  • Financial information where relevant to the suitability review
  • Any additional information requested by the insurance company

What Alemay Business can and cannot control

What we do

  • Review your situation before talking about any product
  • Explain the alternatives in plain language
  • Coordinate the properly licensed professionals
  • Review contracts you already own
  • Help with the documentation
  • Support you through the application
  • Help you understand the terms presented to you
  • Review charges, surrender periods and beneficiaries
  • Coordinate with Estate Planning when relevant
  • Follow up after the contract is issued

What we do not promise

  • A specific return
  • A specific rate, cap or participation rate
  • A specific bonus or premium credit
  • A specific future income amount
  • That there is no risk
  • The result of any index
  • That an annuity is appropriate for everyone
  • That one product is always better than another
  • Specific tax benefits or tax savings
  • Unrestricted liquidity
  • That there are no charges
  • Approval or issuance of a contract
  • That we represent every insurance company
  • That every product is available in every state
  • FDIC coverage: annuities are not bank deposits

The insurance company determines eligibility, terms, rates, parameters, charges, approval, issuance and the effective date of any contract. Variable annuities and registered index-linked annuities are securities, and recommendations or sales involving them require appropriately licensed and registered professionals.

Why people review annuities with us

Analysis before any contract

We start with your objectives, your horizon and your relationship with risk. Only then does it make sense to look at what may fit.

Different annuity types, explained separately

Fixed, fixed indexed, variable and other structures are explained by their characteristics, not presented as one interchangeable product.

Properly licensed professionals

Regulated functions are performed by the licensed professional for the product, the applicable registrations and the jurisdiction.

Partner network

When a need requires another license, registration or specialty, we bring in the appropriate professional within the same process.

Coordination by jurisdiction

Product and professional availability is confirmed based on the state and the case.

Review of existing contracts

If you already own an annuity, we help you understand what you have before anyone talks about changing it.

Connected to your planning

When appropriate, we coordinate with Estate Planning, life insurance and your tax preparation.

Bilingual service in Miami

English and Spanish. 9380 SW 72 ST, Suite 230B, Miami, FL 33173. Virtual service is available when the product and jurisdiction allow.

Follow-up and Ale app

Your digital point for scheduling, resources and communication throughout the process.

Frequently Asked Questions about annuities

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View all servicesAbout Alemay BusinessContact and scheduling

Let's look at your situation before looking at any contract

Schedule a consultation with Alemay Business to review your objectives, your time horizon, the contracts you already own and the charges, surrender periods and riders behind them.

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An annuity is an insurance contract issued by an insurance company. Annuities are not bank deposits, are not FDIC insured, and are not savings accounts, brokerage accounts or mutual funds. Any guarantees are contractual and depend on the terms of the specific contract and on the financial strength and claims-paying ability of the issuing insurance company; they are not guarantees of Alemay Business and are not guaranteed by any government agency. Alemay Business assists within applicable licensed authority and coordinates properly licensed professionals when a product, carrier, registration or jurisdiction requires it, and is not an insurance company. Variable annuities and registered index-linked annuities are securities: they are described here only for general education, and recommendations or sales involving them require appropriately licensed and registered professionals. Eligibility, terms, rates, crediting parameters, charges, riders, approval, issuance, effective dates and product availability are determined by the insurance company under its rules and the applicable regulations. Nothing here guarantees a return, a rate, a cap, a participation rate, a bonus, an income amount, lifetime income, principal protection, liquidity, a tax outcome, suitability, approval or a specific carrier. Withdrawals may be subject to surrender charges, adjustments and tax consequences, and index-linked crediting is calculated under contract formulas rather than through direct investment in an index. This page is informational and general in nature: the contract documents, terms, conditions, charges, limitations and endorsements control, and nothing here is tax, legal or investment advice. Availability of products and professionals is confirmed case by case. Questions: business@alemaybusiness.com or 305-300-2346.