To evaluate an annuity you already own, gather the contract and latest statement, then check the surrender schedule, current crediting rates and guaranteed minimums, any rider and its fees, the death benefit and your actual income needs. Replacing a contract can restart surrender charges and give up existing benefits, so any change should leave you clearly better off after those costs.
Written and reviewed by Dan Hopwood, Retirement Income Specialist · Retirement Income Knowledge Center
Replacing a contract is not automatically an improvement. A surrender charge on the old contract reduces what moves to the new one. A new contract usually starts a new surrender period. You may give up an accumulated income base, an enhanced death benefit or guaranteed minimum rates the new contract does not match. A bonus on a new contract may come with recapture rules, longer surrender periods or lower rates.
Illustration only. Surrender schedules, market value adjustments and free withdrawal rules vary by contract. This is not a recommendation to keep or replace any contract.
Most states have annuity replacement and best-interest rules that require the agent to gather information about your situation, compare the old and new contracts, and document why a change is in your interest. You typically receive a replacement notice, and the new contract has a free-look period during which you can cancel. A direct transfer between annuities, often called a 1035 exchange, can generally avoid current income tax when done correctly, but tax treatment depends on your situation and should be confirmed with a qualified tax professional.
This guide covers fixed and fixed indexed annuities, which are insurance products. Variable and registered index-linked annuities are securities, and reviewing them is outside the scope of RetirementLeverage.
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Often it is costly, because the surrender charge reduces the amount that moves and a new surrender period usually begins. It can occasionally make sense if the new contract is clearly better after those costs, but that should be shown in writing, not assumed.
Compare surrender value today, remaining and new surrender periods, guaranteed minimum rates, rider income and fees, death benefits, and any bonus recapture rules. Comparing only headline rates or bonuses can hide what you would give up.
Most states require a free-look period, commonly 10 to 30 days depending on the state and situation, during which you can return the new contract. Read the free-look terms in the contract, because what you receive back and how the old contract is handled can vary.
This page is educational and general in nature. RetirementLeverage™ and Retirement Planning Store, Inc. do not provide individualized investment, securities, tax, or legal advice; please consult a qualified tax professional or attorney about your own situation. Insurance products and services may not be available in every state, and any guarantees are subject to the financial strength and claims-paying ability of the issuing insurance company.