Have you ever wondered why there are so many types of annuities? Some offer income. Some promise growth. Others come with all sorts of bells and whistles—bonuses, riders, and more.
But here’s the truth: every annuity feature and benefit is designed for a reason. And once you understand how they’re built, you’ll start to see why one annuity might be a perfect fit for you—and another might be a terrible choice.
In this post, I’ll walk you through how annuity features and benefits are designed by insurance companies, what trade-offs are involved, and why it all comes back to one key question: What’s the purpose of your money?
Why Annuity Design Matters
Annuities are built to do very specific jobs. That might be:
- Providing guaranteed lifetime income
- Protecting your money from market loss
- Helping your savings grow tax-deferred
Designing these products takes a lot of math and risk analysis. Insurance companies use actuaries—experts who crunch numbers, study life expectancy, and figure out how to build annuities that can deliver on their promises.
The Building Blocks of Annuities
Here’s what actuaries look at when creating annuity features and benefits:
1. Longevity Risk
They start by asking: how long are people likely to live? This helps them price income annuities so they can keep paying even if someone lives to 100 or beyond.
2. Interest Rate Assumptions
They have to guess what the economy might do. If interest rates drop, they still need to deliver on guarantees. That’s why some annuities adjust over time.
3. Premium and Payout Math
How much do you need to put in to get the benefit you’re promised? This is where pricing models come in.
4. Compliance Rules
Every state has its own insurance laws. So annuities must be legal in all 50 states—no small task.
5. Ongoing Reviews
Annuities aren’t “set and forget” for the insurance company. They watch for market changes and make updates to keep the promises they’ve made.
Understanding Annuity Features and Benefits
This is where people often get confused—the features and benefits inside the annuity. Things like:
✅ Income Options
- Fixed Payments: The same check every month for life or a set number of years.
- Increasing Payments: Usually tied to an index or inflation.
- Deferred Income: You wait a few years before payments begin, so the payout is bigger.
✅ Growth Options
- Fixed indexed annuities might link to the S&P 500 or NASDAQ.
- Growth is limited by caps or participation rates but can never be negative.
✅ Death Benefits
- Some annuities pay out whatever’s left to your heirs.
- Others, especially older SPIAs, might keep the money if you pass away early (I don’t recommend those).
✅ Withdrawal Flexibility
- Can you take out 10% per year?
- Are there penalties for accessing money early?
✅ Add-Ons and Riders
- Long-term care coverage
- Enhanced death benefits
- Bonuses for signing up
Every one of these features takes up room in the design. That’s where trade-offs come in.
The “100 Points” System
An early mentor once told me: There are no deals in the insurance industry. Everything is based on math.
Think of every annuity as having 100 points to work with. Each feature or benefit costs points.
If you try to get a product with everything—bonus, income rider, growth, death benefit, no fees—each piece will be watered down.
You’re better off picking one or two key goals and letting the annuity focus on those.
- Want maximum income? Use 95 points for the payout. The rest can go to a basic death benefit.
- Want market-linked growth? Use 95 points for better crediting strategies. The other 5 can go to liquidity or a death benefit.
You can’t have it all. And when you try to, everything gets weaker.
Why One Annuity Can’t Fit Everyone
Some advisors give group presentations and pitch a single annuity to the whole room. I don’t do that. Why? Because:
- Some people want income
- Others want safety with growth
- Some need flexibility or long-term care features
The best annuity for you depends on the purpose of your money. Until you define that, any product could be a mismatch.
Final Thoughts
Annuity features and benefits are not random. They’re carefully designed based on risk, math, and what the marketplace demands. But no annuity can do it all.
So before you get wowed by bells and whistles, ask this:
What am I trying to accomplish with this money?
Once you know that, picking the right annuity gets a whole lot easier.
Next Step: Learn How to Get More Spendable Income
If you found this helpful, I’d recommend starting with my free video series:
“20% More Spendable Income in Retirement.”
It’s a simple, no-nonsense look at how to use annuities the right way—based on your goals.
👉 Click here to watch the first video now.
Or, if you’re ready to talk about your situation, you can schedule a free call with me here.
All the best,
Marty Becker
Podcast Episode #74: How Annuity Features and Benefits Are Designed
Download How Annuity Features and Benefits Are Designed on Apple Podcast