By a financial services industry contributor.
Annuities are a popular choice for retirement in America. Total U.S. annuity sales reached a record $434.1 billion in 2024. According to LIMRA, that figure grew to $464.1 billion in 2025. With so many people buying these insurance contracts for a steady income, they often focus on the interest rate or payout amount. But an annuity is only as good as the company that backs it, and the company’s financial health is just as important.
An annuity is a long-term promise. You give an insurance company a sum of money now, and they promise to pay it back to you over time. This is why the insurance company’s financial health is one of the most important things to check. When you start looking at different annuities, a marketplace like annuityadvantage.com can help you compare products from different companies. But don’t stop there. You need to look closely at the company, not just the contract.
Quick answer: To check an annuity company, you need to look beyond the sales pitch. Check the insurer’s financial strength ratings from independent agencies like A.M. Best, S&P, and Moody’s. You should also check the agent’s background, make sure they have a state license, and ask how they get paid for selling you a specific product.
What’s inside
- What are the key financial ratings to check?
- How do surrender charges and fees really work?
- How can I verify an agent’s license and credentials?
- Frequently Asked Questions
- The Final Check: A Disciplined Approach
What are the key financial ratings to check?
The best way to know if an insurance company is stable is to check its financial strength ratings. These ratings come from independent companies like A.M. Best, S&P, Moody’s, and Fitch. These ratings aren’t ads for the annuity. They are expert opinions on whether the company can pay its bills and keep its promises to people who own its policies. An annuity can last for decades, so you need to be sure the company will still be around to pay you.
These companies are responsible for a huge amount of money. In 2025, sales of fixed-rate deferred annuities alone reached $165.3 billion, according to LIMRA. The same report noted that sales of traditional variable annuities added another $63.1 billion to the market. That’s hundreds of billions of dollars in retirement savings that people have trusted to insurance companies. When you buy an annuity, you are buying their promise to manage this money well and pay you in the future.
Each rating agency has its own grading system, but they all measure the same thing: the company’s ability to pay its debts. A.M. Best, which focuses on the insurance industry, uses a letter grade system from A++ (Superior) down to D (In Poor Financial Condition). These grades come from a close look at the company’s finances, how it operates, its business plan, and how it handles risk. A high rating means the company has a lot of money in reserve and can handle bad economic times.
❝ Many financial experts recommend choosing companies with an ‘A’ (Excellent) rating or higher from A.M. Best. A ‘B++’ (Good) rating isn’t a red flag, but an ‘A’ rating suggests the company is in a stronger financial position. This is important for a product that might need to pay you for 30 years or more.
Always check the company’s ratings from several agencies. One high rating is good, but high ratings from a few different sources give you a better sense of the company’s financial health. Ratings can change, so it’s smart to check them when you first start looking.
How do surrender charges and fees really work?
These costs lower the money you make. They are listed in the contract, so you must read about the fees and surrender charges before you sign. Annuities are meant for long-term retirement savings, not for short-term needs. To make sure you keep your money in for the long term, companies have a surrender charge period. If you take out too much money during these years, you will have to pay a penalty.
This penalty is usually a percentage of the money you take out, and the percentage goes down over time. The main reason for this charge is to help the insurance company cover its initial costs, like paying the agent’s commission and setting up the account.
Here is a typical declining surrender charge schedule for a 9-year period:
| Contract Year | Surrender Charge |
| 1 | 9% |
| 2 | 8% |
| 3 | 7% |
| 4 | 6% |
| 5 | 5% |
| 6 | 4% |
| 7 | 3% |
| 8 | 2% |
| 9 | 1% |
| 10+ | 0% |
Be sure to ask about the “free withdrawal” rule. Most annuities let you take out a certain amount each year (often up to 10% of the value) without a penalty, even during the surrender period.
Besides surrender charges, there can be other fees, especially with variable and indexed annuities. The Financial Industry Regulatory Authority (FINRA) provides investor alerts on these costs. Common fees include yearly administrative fees for paperwork and M&E (mortality and expense) risk charges. The M&E charge pays the insurance company for the risks it takes, like promising a death benefit or making sure your income payments last for your whole life. You might also pay extra fees for optional add-ons, called riders. These can give you extra benefits, like a guaranteed income or money for long-term care.
❝ Ask your agent for a written list of all possible fees, including their commission. They should give you a clear answer about how they are paid and if that changes depending on the product you buy. This isn’t a rude question. It’s a normal part of being a smart consumer.
In the end, all fees and charges are listed in the annuity contract. Read this document carefully, especially the parts about fees, expenses, and surrender charges, before you put any money in.
How can I verify an agent’s license and credentials?
You should always check an agent’s insurance license on your state’s Department of Insurance website. This site will also show if the agent has faced any penalties. This is a basic step when checking on someone who is giving you advice about a big financial choice. An annuity is a type of insurance, and anyone who sells them must have a valid license from the state.
The process is simple. Visit the website for your state’s Department of Insurance (sometimes called the Division of Financial Regulation or a similar name). Look for a tool labeled “Agent Search,” “Licensee Lookup,” or “Verify a License.” Using the agent’s full name and, if you have it, their license number, you can confirm several key details:
- Is their license currently active and in good standing?
- What specific types of insurance are they licensed to sell (e.g., life, health)?
- Are there any public records of complaints or regulatory actions against them?
This search is an important safety check. It gives you an unbiased, third-party look at the agent’s professional record and confirms they are legally allowed to sell you an annuity.
❝ Ask the agent a direct question: “Are you a captive agent or an independent broker? Which insurance companies can you sell for?” An independent agent should be able to name several well-known companies. If they give a vague answer or only name one company, you’ll know more about the advice they can offer.
Besides checking the license, it’s also important to know how the agent’s business works. A “captive” agent works for a single insurance company and can only offer that company’s products. An “independent” agent or broker works with multiple insurers. This difference is important. An independent agent can shop around with different companies to find a better fit for you. A captive agent can only sell you what their one company offers. The National Association of Insurance Commissioners (NAIC) provides a directory to help you locate your specific state’s regulatory agency to begin your search.
Frequently Asked Questions
What happens if the insurance company that issued my annuity fails? Your annuity is protected up to a certain amount by a state guaranty association. These groups are funded by other insurance companies in the state. It’s not a federal guarantee like FDIC insurance for banks, but it is a strong safety net. The coverage limits are different in each state, so you should check the rules where you live.
Are the earnings in my annuity taxable? A key benefit of annuities is that your earnings grow tax-deferred. This means you don’t pay taxes on the interest or investment gains each year. You only pay taxes when you start taking money out. When you do, the earnings are taxed as regular income, not as capital gains.
Can I change my mind after I purchase an annuity? Yes, every state requires a “free look” period, which gives you the right to review and cancel the contract without penalty. This period is typically between 10 and 30 days after you receive the physical policy documents. If you decide the annuity is not right for you during this window, you can return the contract for a full refund of your premium.
How is an agent’s commission paid? The insurance company pays the agent’s commission, not you. Your entire premium payment starts working for you on day one. The commission is a business cost for the insurer and is factored into the annuity’s rates, fees, and surrender charges.
What is the main difference between a fixed and a variable annuity? A fixed annuity gives you a guaranteed interest rate for a set period of time. This provides steady, predictable growth, much like a CD. It’s a safer option. A variable annuity lets you invest your money in accounts that work like mutual funds. Its value goes up and down with the market. It could earn higher returns, but you also risk losing money.
The Final Check: A Disciplined Approach
Choosing an annuity is a long-term decision, so you need to check everything carefully. It’s about more than just interest rates. You need to check three key things: the financial health of the insurance company, the exact terms and costs in the contract, and the background of the agent helping you. You need to check each of these things for yourself. A good product from a weak company is a risk. So is a great contract sold by an agent you haven’t checked out. Both are bad for your retirement savings.
In the end, the most important thing is that everything is clear to you. After doing your homework, can you explain how the annuity works, what the fees are, and when you can get your money? If anything seems unclear, or if you get complicated answers instead of simple ones, it’s time to slow down. A good annuity should be easy to understand. The final and most important check is that you feel comfortable and understand everything before you sign. This careful approach will help you make a choice you can count on for years.
About the author
This article is from the team of financial professionals at Annuity Advantage. As an independent agency, they offer free educational resources and an online marketplace to compare annuities from many different insurance companies. They focus on helping people understand different types of annuities for their retirement income plans. Annuity Advantage provides tools and information to help you review contract details, a company’s financial health, and interest rates for your retirement planning.