How you buy an annuity depends on who sells it to you
You buy an annuity by working with a licensed insurance agent, financial advisor, or bank representative who sells annuity contracts. The insurance company issues the contract, but you do not buy directly from them — you go through an intermediary. The process takes anywhere from a few days to a few weeks, depending on the type of annuity and how much underwriting the company requires.
The basic steps are the same across all annuity types: you choose a product, provide financial and health information, fund the contract with a lump sum or series of payments, and sign the paperwork. What changes is who you work with and what happens after you sign.
Key Takeaways
- You must work with a licensed insurance agent, financial advisor, or bank — you cannot buy an annuity directly from an insurance company.
- The agent will ask about your age, health, income, and what you want the annuity to do, then show you specific products that match those needs.
- You fund the contract with either a single lump sum (when ready annuity) or regular payments over time (deferred annuity).
- The insurance company will request medical records or a health questionnaire before issuing a contract, especially for when ready annuities.
- Once you sign, you have a period (usually 10 to 30 days) to cancel without penalty, called a free look period.
Finding and choosing an agent or advisor
Start by deciding what type of professional you want to work with. An insurance agent sells annuities from one or more insurance companies and earns a commission on the sale. A financial advisor may sell annuities as part of a broader investment strategy and may charge a flat fee, hourly rate, or commission. A bank representative can sell annuities but typically only those issued by affiliated companies.
Ask potential advisors whether they are fiduciaries — meaning they are legally required to act in your best interest, not just sell you a product that pays them more. Insurance agents are not always fiduciaries, so ask directly. You can also check whether an advisor is registered with the Financial Industry Regulatory Authority (FINRA) by visiting FINRA BrokerCheck online.
Once you have chosen someone, tell them what you want the annuity to do: provide may provide income in retirement, protect money from market risk, leave money to heirs, or something else. They will then show you specific products from their available companies that match your goals.
Providing financial and health information
The advisor will ask you questions about your age, current income, savings, debts, and retirement timeline. They will also ask about your health history, especially if you are buying an when ready annuity (one that starts paying you within a year). Some companies use this information to calculate how long you are likely to live, which affects how much they will pay you each month.
For a deferred annuity (one that grows before you start taking money), health questions are usually lighter or skipped entirely, because the company is not yet calculating your life expectancy. For an when ready annuity, expect to answer detailed questions about surgeries, medications, chronic conditions, and family medical history. Some companies will request medical records from your doctor.
Be honest on these forms. Lying about your health can give the insurance company grounds to deny a claim later or cancel the contract.
Choosing how to fund the contract
You fund an annuity with money you already have. The two main routes are a lump sum and periodic payments.
A lump sum means you give the insurance company a single amount of money — often from a savings account, inheritance, or rollover from a retirement account. This is the standard way to buy an when ready annuity. You might fund it with $100,000 and start receiving monthly payments within 30 to 90 days.
A periodic payment plan means you fund the contract over time, usually monthly or quarterly. This is common with deferred annuities, where you are building the contract's value before you start withdrawing. You might commit to paying $500 per month for 10 years, for example.
Some annuities also allow a rollover from a retirement account — moving money from an IRA or 401(k) directly into the annuity without triggering taxes. Your advisor can explain whether this makes sense for your situation and what paperwork the insurance company needs.
Submitting the process and underwriting
Once you and your advisor have chosen a product and decided how to fund it, you will fill out a formal process. This is a legal document that the insurance company uses to decide whether to issue the contract and on what terms.
The process asks for your personal information (name, date of birth, Social Security number), financial information (income, assets, debts), and health information (for when ready annuities). You sign it under penalty of perjury, meaning you are swearing the information is true.
The insurance company then reviews your process in a process called underwriting. For a deferred annuity with no health questions, this might take a few days. For an when ready annuity, the company may request medical records from your doctor, which can add one to three weeks. During this time, the company is verifying your information and assessing risk.
If the company approves your process, it will issue the contract and send it to you and your advisor. If it has questions, it will contact you or your advisor for clarification.
Signing the contract and the free look period
Once you receive the contract, read it carefully. The contract spells out exactly what you will receive, when you will receive it, what fees you will pay, and what happens if you want to stop or change the contract later.
You sign the contract and return it to the insurance company (usually through your advisor). At this point, the contract is legally binding — you own an annuity.
However, most states require insurance companies to give you a free look period, usually 10 to 30 days, during which you can cancel the contract and get your money back without penalty. The exact length varies by state and by the type of annuity. Check your contract for the specific dates. If you change your mind during this window, contact your advisor or the insurance company in writing and request cancellation.
Funding the contract and receiving payments
After the free look period ends (or when ready, if you do not cancel), you fund the contract by sending money to the insurance company. If you are paying a lump sum, you typically send a check or arrange a bank transfer. If you are rolling over money from a retirement account, your advisor will coordinate the transfer with your current account custodian.
For a deferred annuity, you begin making periodic payments according to your agreement. For an when ready annuity, the insurance company begins calculating your first payment and will send it to you on the date specified in your contract — usually 30 to 90 days after funding.
Payments are typically sent by direct deposit to your bank account each month, though some companies offer checks or other methods. Your contract will specify the payment schedule and amount.
What to watch for during the buying process
High pressure to decide quickly is a red flag. Legitimate advisors will give you time to read the contract and ask questions. If someone is pushing you to sign today or says the offer expires soon, walk away.
Unclear fees are another warning sign. Before you sign, ask your advisor to explain every fee in the contract: surrender charges (penalties for withdrawing early), annual administrative fees, mortality and expense charges, and investment management fees. Write them down and compare them across products.
Unsuitable products are a risk, especially if you are older or have limited savings. An when ready annuity that locks up all your money in exchange for a small monthly payment may not be right for you. A deferred annuity with high fees and a long surrender period may not match your timeline. Ask your advisor why they are recommending this specific product and what alternatives exist.
Frequently Asked Questions
Can I buy an annuity with money from my 401(k) or IRA?
Yes. You can roll over money from a 401(k) or traditional IRA into an annuity without paying taxes on the transfer, as long as the rollover goes directly from your old account custodian to the insurance company. Your advisor will handle the paperwork. Roth IRA rollovers have different rules, so ask your advisor before proceeding.
What happens if I change my mind after I sign?
Most states give you a free look period of 10 to 30 days to cancel without penalty. Check your contract for the exact dates. After that period ends, you can still cancel, but you may owe a surrender charge — a penalty that decreases over time. Some annuities let you withdraw a small amount each year without penalty.
Do I need a medical exam to buy an annuity?
For a deferred annuity, usually no. For an when ready annuity, the insurance company will ask health questions and may request medical records from your doctor. They use this information to calculate how long you are likely to live, which affects your monthly payment amount.
How long does it take to start receiving payments?
For a deferred annuity, you receive payments on the date you choose — often years in the future. For an when ready annuity, you typically start receiving payments 30 to 90 days after you fund the contract. The exact timeline depends on the insurance company and when you submit your process.
What if the insurance company goes out of business?
Each state has a guaranty fund that protects annuity holders if an insurance company fails. The amount of protection varies by state, but it is typically $250,000 or more per person per company. Ask your advisor what your state's protection limit is.