Annuity Premiums

Annuities Glossary

Building Savings
John Lund/Blend Images/Getty Images

Annuity premiums are the dollars you pay into an annuity. In most cases, you can think of annuity premiums as if they were simply account deposits.

Why the confusing lingo? Because an annuity is an insurance contract, insurance language gets used. Think of all the other payments you make to insurance companies (auto and homeowner's, for example) -- those are also referred to as premiums.

How Annuity Premiums Work

A premium paid into an annuity is simply an investment in most cases.

For example, you may want to buy an annuity with $10,000. You'd complete an annuity application and write a check for $10,000, and that $10,000 would be your initial premium paid into the annuity.

Premiums can also be ongoing. Instead of (or in addition to) making a single up-front deposit, you might have the option to make regular monthly or annual contributions to the account. Check with your annuity issuer to find out what your options are -- different products have different rules.

How to Pay Premiums

To add funds to your annuity, you've got several options. In most cases, any funds you add will count as premium payments:

  • The simplest approach for one-time payments is to write a check payable to the insurance company (include your account number and any other instructions necessary)
  • You can also set up electronic payments (either on-demand or recurring) from your bank account, which is a good idea if you'll make more than one payment
  • In some cases, you can transfer assets from other accounts, and those transfers will count as premium payments

Generally, you can not make premium payments to your annuity with a credit card.

Check with your insurance company to see if there are any minimum or maximum limits on premiums. If your annuity is also an individual retirement account (IRA), be mindful of IRS limits on how much you can contribute each year.

Long-Term Commitment

Before you contribute funds to an annuity, make sure you understand that you might be locking that money up for the long term:

  • If you pull those funds out before the surrender period ends, you might have to pay penalty charges to the insurance company
  • You might face tax consequences for removing funds from an annuity, including income taxes due plus additional penalty taxes

Compare Annuity Premiums to Life Insurance Premiums

For some annuities, you don’t have to continually make premium payments like you do with a standard life insurance contract. Of course, you should verify exactly what is required in your particular situation and with your particular contract – you don’t want to give up any rights or benefits! Also, the more you contribute, the more you'll have later, so it might be helpful to add to any existing savings. Discuss your needs and your options with a local financial planner.

Some people simply make one annuity premium payment – or one investment – with a lump-sum of money. Then, they just let the annuity do it’s thing for a few years.

Return to the Annuities Overview page.