An annuity is an insurance product designed to help you save money for retirement. There are different types of annuities, and you should know what they are so you can choose the one that's right for you.

The two main types of annuities are variable and fixed.

In a variable annuity, the value of your annuity account can go up or down depending on a related market index or other assets depending upon the annuity.

In a fixed annuity, the value of your principal deposit remains the same, regardless of market index losses. Fixed annuities can be further broken down into traditional fixed and fixed indexed annuities.

If you are new to annuities and you are looking for both security of principal and performance, I would share that the Averill family has had great success purchasing specific fixed annuities.

Structured annuities are a newer type of annuity that are designed to balance risk and return. They offer some exposure to principal loss, but within a specified parameter to limit risk.

In addition to these basic types, there are different subsets of products that are created for different purposes. For example, an income rider contract is a type of fixed indexed annuity product that provides regular income payments, while a multiple year rate guarantee annuity (MYGA) provides a higher interest rate for a specific period of time.

When choosing an annuity, you’ll want to consider factors like surrender charges, beneficiary options, and fees. The Averill family portfolio uses some multiple year rate guarantee contracts that provide guaranteed fixed interest rates throughout the surrender charge period. In addition, we only consider contracts that leave any remaining amounts to be paid out upon death to the beneficiaries with no surrender charge.

It's also important to understand the terms of the contract, such as the guaranteed minimum annuitization calculation balance, and to properly manage the contract after purchase to avoid losing money. If you're new to annuities and looking for security and performance, we can help recommend the right one to fit your specific needs.

Cap Averill shared his perspective; He said he doesn’t gamble against the house, even if the house can't stack the deck against him. He'd only consider buying an annuity if all the parameters were locked down and the company couldn't control its performance after the purchase.

In our publication entitled, “Only One Annuity,” we answer the question of what type of annuity we would choose if we were stranded on a desert island and could only buy one subtype. We believe that there is really only one type of annuity we would buy: a stripped-down, no-frills, aggressive fixed indexed annuity that tracks the Standard & Poor's 500. We also only consider annuities from highly rated companies that have historically honored their rates after the point of sale.

We don't pay any fees unless our historical testing shows that it's not only paid for itself but is also profitable at extremely high propensities. Cap Averill always said that he wouldn't pay an insurance company an extra percent for an additional guarantee in case the crediting methods they control underperform. “It's against my survival instincts,” he would say. On the other hand, we have fixed indexed annuities that pay 100% of the growth of the Standard & Poor's 500 based on a nominal fee.