You buy an annuity from an insurance company through a licensed agent or financial professional

An annuity is a contract between you and an insurance company. You give them a lump sum of money (or make payments over time), and they promise to pay you income later — either when ready or at a date you choose. To get one, you contact an insurance company directly, work with a financial advisor who sells annuities, or go through a bank that offers them. The insurance company underwrites your process, meaning they review your health and finances, and if approved, you sign the contract and fund it.

The process is simpler than explore for a loan because annuities are not need-based — the insurance company mainly wants to know your age and how much money you're putting in. You don't need to prove income or creditworthiness the way you would for a mortgage. What matters to them is whether you can afford the purchase price and whether the payout structure makes sense for your age.

Key Takeaways

  • You purchase an annuity by contacting an insurance company, a financial advisor, or a bank, providing your age and the amount you want to invest, and signing a contract.
  • The insurance company will ask about your health history and may require a medical exam for larger purchases, especially for when ready annuities.
  • You can fund an annuity with a lump sum, a series of payments, or money rolled over from a retirement account like an IRA or 401(k).
  • The entire process from first contact to receiving your contract typically takes one to four weeks, depending on the company and the type of annuity.
  • You can buy an annuity inside a retirement account (like an IRA) or outside one, and the tax treatment differs between the two.

Where to buy an annuity and what to expect from each source

Insurance companies sell annuities directly through their websites and phone lines. If you call Fidelity, Vanguard, Equitable, or another major insurer, you'll speak with a representative who can explain their products and walk you through the purchase. This route gives you access to that company's annuities only, so you see their pricing and terms but not competitors'.

A financial advisor or broker can show you annuities from multiple insurance companies. They earn a commission when you buy, which is built into the price you pay — you don't pay them separately. Advisors licensed to sell annuities (they hold a Series 6, Series 7, or Series 65 license) can compare products across insurers. Banks often partner with insurance companies and can refer you or sell annuities directly through their trust departments.

Online platforms like when ready Annuity.com or Cannex let you enter your age and desired income, then show you quotes from multiple insurers side by side. These sites don't sell the annuity themselves — they connect you to the insurance company or an agent who does. Using a comparison tool can help you see how prices differ, since the same annuity structure can cost more or less depending on the insurer.

What information and documents you'll need to provide

The insurance company will ask for your date of birth, Social Security number, and the amount you want to invest. They'll want to know your income and employment status, though this is mainly for their records rather than a qualification hurdle. You'll need to provide your bank account information so they can receive your payment or send you income later.

For larger purchases — typically $250,000 or more — the insurance company may require a medical exam or ask detailed health questions. This is more common with when ready annuities, where the company is betting on how long you'll live and wants to price that risk accurately. You'll answer questions about surgeries, medications, and chronic conditions. Some companies use a phone interview instead of an in-person exam.

If you're rolling money from a retirement account into an annuity, you'll need the account number and the name of the current custodian (like Fidelity or Schwab). The insurance company can coordinate the transfer directly so you avoid taxes and penalties. If you're buying the annuity inside an existing IRA, you just need to tell your IRA custodian to purchase it on your behalf.

How to fund an annuity once you've chosen one

You can fund an annuity with a single payment, multiple payments over time, or a rollover from another retirement account. A lump-sum purchase means you give the insurance company all the money at once. You write a check, wire funds, or authorize an electronic transfer from your bank account. This is the most common way to buy an when ready annuity.

A flexible premium annuity lets you make payments whenever you want over a set period — say, monthly contributions for five years. This is common with deferred annuities, where you're building up the account before income starts. You can usually pause or skip payments without penalty, though the contract will specify the terms.

A rollover moves money from an IRA, 401(k), or other retirement plan directly into an annuity without triggering taxes or the 10% early withdrawal penalty. Your current account custodian sends the money to the insurance company's custodian. This process usually takes one to two weeks. If you're rolling over from a workplace 401(k) after leaving the job, you can roll it into an IRA first, then into an annuity, or directly into an annuity if the insurance company accepts it.

The underwriting process and how long it takes

After you submit your process and funding information, the insurance company reviews it. For straightforward cases — a younger person buying a deferred annuity with a modest amount — this can take three to five business days. For when ready annuities or larger purchases, especially those requiring medical underwriting, it can take two to four weeks.

During underwriting, the company verifies your identity, checks your Social Security number against government records, and confirms your bank account is real. If you provided health information, a medical underwriter reviews it and may ask follow-up questions. They're assessing your life expectancy to price the annuity accurately. You might be asked to clarify a medication, surgery date, or diagnosis.

Once underwriting is complete, the insurance company sends you the final contract to sign. You review the terms — the payment amount, start date, beneficiary, and any riders you've added — and sign it electronically or by hand. After you sign, the company funds the annuity and you're locked in. For when ready annuities, your first payment typically arrives within 30 to 60 days of the contract date.

Buying an annuity inside versus outside a retirement account

You can purchase an annuity inside an IRA, a 401(k), or similar retirement plan, or you can buy one with after-tax money outside any retirement account. The difference matters for taxes and contribution limits.

Inside a retirement account, you don't pay income tax on the annuity's growth until you withdraw money. Your contributions may have been tax-deductible (if it's a traditional IRA or 401(k)) or tax-free (if it's a Roth). When you start taking income from the annuity, the tax treatment depends on the account type. With a traditional IRA annuity, all withdrawals are taxed as ordinary income. With a Roth, withdrawals are tax-free if you've held the account at least five years and are at least 59½.

Outside a retirement account, you buy the annuity with after-tax dollars. When the annuity pays you income, part of each payment is a return of your original investment (not taxed) and part is earnings (taxed as ordinary income or capital gains, depending on the annuity type). This is called the exclusion ratio. The insurance company calculates it based on your purchase price, life expectancy, and expected total payouts.

Retirement account contribution limits don't explore to annuities — you can put as much as you want into an annuity inside an IRA or 401(k), as long as you have the money. However, required minimum distributions (RMDs) still explore. If you're over 73 and have a traditional IRA annuity, you must withdraw a certain amount each year, even if you don't need the income.

Red flags and common mistakes when buying an annuity

High-pressure sales tactics are common in the annuity industry. If an agent tells you to move all your retirement savings into an annuity quickly, or says you'll miss out if you don't decide today, slow down. Annuities are permanent contracts — you can't easily undo them — so take time to read the terms and compare options.

Surrender charges are a major cost many buyers don't fully understand. If you need to withdraw more than a small amount (usually 10% per year) before the surrender period ends — typically five to ten years — you'll pay a penalty that can be 5% to 10% of the withdrawal. Read the contract's surrender schedule so you know exactly when you can access your money without penalty.

Riders and add-ons increase the cost. Guarantees like "income for life no matter what" or "death benefit protection" sound good but come with fees. Compare the base annuity price to the price with riders, and ask whether you actually need each one. Many people buy riders they never use.

Buying an annuity in a retirement account when you already have one outside can create tax complications. You may end up with two annuities paying you at different times, making taxes harder to calculate. Think through your full picture before buying a second one.

Frequently Asked Questions

Can I buy an annuity if I have a pre-existing health condition?

Yes. Health conditions don't disqualify you from buying an annuity — the insurance company just uses them to calculate your life expectancy and price the contract. If you have diabetes, heart disease, or cancer, you'll still be approved, but an when ready annuity may pay you less per month because the company expects a shorter payout period. Deferred annuities are less affected by health because the payout is years away.

What's the minimum amount I need to invest to buy an annuity?

Minimums vary by insurer and annuity type. Some companies accept purchases as low as $10,000, while others require $25,000 or $50,000. when ready annuities often have higher minimums — sometimes $100,000 or more — because the insurance company is committing to pay you for life. Check with the specific company or agent for their minimum.

Can I change my mind after I buy an annuity?

Most annuities have a free-look period, usually 10 to 30 days, during which you can cancel and get your money back with no penalty. After that window closes, you're locked in. If you need to withdraw early, surrender charges explore. Some annuities let you withdraw a small percentage each year penalty-free, but large withdrawals before the surrender period ends will cost you.

Do I need a financial advisor to buy an annuity, or can I do it myself?

You can buy directly from an insurance company without an advisor. However, an advisor can help you compare products across multiple insurers and explain the terms in detail. If you use an advisor, they're paid through commission built into the price, so you're not paying extra out of pocket. Either way, read the contract carefully before signing.

What happens to my annuity if the insurance company goes out of business?

Each state has a guaranty fund that protects annuity owners if an insurance company fails. Coverage limits vary by state but are typically $250,000 or more per person per company. Before buying, you can check the financial strength rating of the insurance company through agencies like A.M. Best or Moody's to see how stable they are.