Turning savings into income on a schedule.
Immediate and deferred annuities, fixed, fixed indexed and variable, explained before anyone recommends one: how each grows, what it charges and what it costs to take money out early.
Quick answer An annuity is a contract with an insurance company that promises to pay you income regularly for a period you choose, which can be the rest of your life.
- An immediate annuity starts paying soon after you buy it, while a deferred annuity builds value first and pays income or withdrawals later.
- A fixed indexed annuity earns interest based on changes in a market index, limited by caps, participation rates or spreads, and the interest credited can't be less than zero.
- Deferred annuity earnings are tax deferred, not tax free: ordinary income tax is due as money comes out, and withdrawals before age 59½ may add a 10% federal tax penalty.
- An annuity surrender charge is a percentage of what you withdraw from a deferred annuity during a set number of years, and it usually shrinks each year.
- Under NAIC's best interest standard, adopted in California and most states, an annuity recommendation must put the buyer's interest ahead of the seller's.
By Sam Alishahi · CA Insurance License #4348151 · Reviewed October 2026 · How this page is researched
A contract that pays you income
An annuity is a contract with an insurance company that promises to pay you income regularly for a period you choose, which can be the rest of your life. An immediate annuity starts paying soon after you buy it. A deferred annuity builds value first, and you take income or withdrawals later. Earnings in a deferred annuity are tax deferred, not tax free: ordinary income tax is due as money comes out, and withdrawals before age 59½ may add a 10% federal tax penalty.
Whoever recommends an annuity has to learn your age, income, assets, debts, tax status, risk tolerance, goals and how you plan to use it. Most states, California among them, have adopted NAIC's best interest standard for annuity sales, which says the recommendation must put your interest ahead of the seller's and the reasons must be explained and documented. Expect those questions from me. The answers decide whether an annuity fits at all.
- FixedEarns a rate the company sets for a period, never below the minimum in the contract.
- Fixed indexedInterest tied to a market index through caps, participation rates or spreads, and never less than zero.
- VariableValue follows subaccounts you choose, can rise or fall, and is sold as a security.
- ImmediateA lump sum turned into income that begins right away.
What underwriters will ask
Having these ready means I can go to market on the first call. The quote form asks for the same things, and anything you don’t know yet can wait.
- Age: yours, and your spouse's if income should continue for two lives.
- Goal: income now, income later, or growth with a guaranteed minimum.
- Amount and source: how much, and where it comes from, such as savings or a retirement account.
- Access: money you might need over the next several years, which affects surrender charges.
- Risk tolerance: whether you could accept any loss of value.
- Existing annuities: contracts you already own, with their surrender schedules.
Annuities, answered
What is the difference between fixed, fixed indexed and variable annuities?
A fixed annuity earns a rate the company sets, with a guaranteed minimum. A fixed indexed annuity earns interest based on changes in a market index, limited by caps, participation rates or spreads, and the interest credited can't be less than zero. A variable annuity's value depends on the subaccounts you choose and can go down as well as up.
What is a surrender charge?
A charge for taking money out of a deferred annuity during a set number of years. It's a percentage of what you withdraw and usually shrinks each year until the period ends. Many annuities let you take a small amount each year, often up to 10%, without it.
How are annuities taxed?
Earnings are tax deferred while they stay in the annuity, then taxed as ordinary income when you withdraw them or receive payments. Withdrawals before age 59½ may also carry a 10% federal tax penalty, and survivors typically owe income tax on a death benefit. Ask a tax professional about your situation.
Who can sell a variable annuity?
Anyone selling an annuity needs a state insurance license. A variable annuity is also a security, so the seller must be registered with FINRA as a representative of a broker-dealer, and some states also require a securities license. You should receive a prospectus.
What is the best interest standard for annuities?
It comes from NAIC's Suitability in Annuity Transactions Model Regulation, revised in 2020. A recommendation must be in your best interest and can't put the seller's or the company's financial interest ahead of yours. The seller must disclose their role and compensation, explain the basis for the recommendation and document it in writing. As of August 2025, 49 jurisdictions, including California, had adopted the revision.
Can I cancel an annuity after I buy it?
Most states give you a free look period, usually 10 to 30 days after you receive the contract. Depending on the state, you get back either everything you paid or the current account value. The period should be stated prominently in the contract.
Is my annuity protected if the insurance company fails?
Annuity guarantees depend on the company's financial strength. In California, owners of annuities from insurers that hold a California license may be partly protected by the California Life and Health Insurance Guarantee Association, within limits set by law. In California, recommending an unnecessary replacement annuity to someone 65 or older is also prohibited.
Do you offer annuities outside California?
Yes. Clients across the country send the same quote form. California policies are placed directly; outside California the request is handled together with a partner agency in your state, and the shopping across carriers works the same way. Rules, minimums and markets differ by state — see insurance requirements by state.
Official sources
- NAIC: Buyer's Guide for Deferred Annuities
- NAIC: Annuity Suitability Best Interest Model Regulation (#275) brief
- California Department of Insurance: Life Insurance and Annuities guide (annuity types, suitability, guarantee association)
- California Department of Insurance: Life Insurance and Annuities brochure (variable annuities and FINRA)
Tell me what the money needs to do.
Your age, the amount and when you'd want income are enough to start the conversation.
Alishahi Insurance · Saman Alishahi, independent insurance broker, California License #4348151. General information, not a quote or a promise of coverage; coverage depends on underwriting and the terms, conditions and exclusions of the policy actually issued.
Tell me how to reach you. I’ll take it from there.
Takes about 30 seconds. I review every request personally and call you back, usually the same day.
(424) 552-4545Answered 24/7 · CA License #4348151
Get a reminder before your renewal.
Tell me when your policy renews and I’ll email you about six weeks before, when it’s worth comparing. One email, no calls.