How to Read an Annuity Illustration, Line by Line

An annuity illustration is a set of tables. It shows how an annuity might grow over time. The insurer or the agent prepares it for you. It can run many pages, and most of it is numbers. This guide walks through it one column at a time.

It is a companion to our earlier piece, What Annuity Illustrations Leave Out. That article covers the gaps. This one covers the page itself.

What is an annuity illustration?

An annuity is a contract with an insurance company. You pay money in. The insurer agrees to credit interest, pay income, or both. An illustration shows how the contract's values could change, year by year.

The National Association of Insurance Commissioners (NAIC) is a group of state insurance regulators. It writes model rules that states can adopt. Its annuity disclosure model calls an illustration a "personalized presentation" that "includes non-guaranteed elements of an annuity contract over a period of years." In plain words, it is made for you, and some of its numbers are not promised.

Under that model, an illustration must be labeled, dated and numbered page by page. It must come with a disclosure document. It must show values for each of the first ten contract years. After that, it must show every tenth year, up to 30 years or age 70, whichever comes later. Rules can vary by state, so the layout you see may differ.

U.S. annuity sales have set records in recent years. LIMRA, an industry research group, puts 2025 sales at $464.1 billion, up 7%.

What does "guaranteed" mean on an illustration?

Most illustrations show at least two sets of numbers. One set is guaranteed. The other is not.

Guaranteed values are the lowest the contract promises. They use the contract's minimum terms. Non-guaranteed values are often labeled "current" or "illustrated." They assume today's rates stay the same for many years.

The NAIC model says guaranteed values must be shown first. Non-guaranteed values must carry a warning. It says they are not guaranteed, that the insurer can change the assumptions, and that "actual results may be higher or lower."

For fixed and indexed annuities, the model's sample wording goes further. It says the values "are not guarantees or even estimates of the amounts you can expect from your annuity." Many readers find it helpful to read the guaranteed column first. The other columns are one possible path, not a forecast.

What is the difference between account value and surrender value?

The account value is the money credited to your contract. It may be called the accumulation value or contract value.

The surrender value is what you would get if you cashed out the whole contract. Under the NAIC model, it is the lump sum left "after deduction of surrender charges, bonus forfeitures, contract loans, contract loan interest" and any market value adjustment. The model says the two values should sit close together on the page.

In the early years, the surrender value is often lower than the account value. The gap is mostly the surrender charge.

A market value adjustment (MVA) is a change, up or down, tied to interest rates. If rates rise after you buy, the model says it "likely will decrease the amount you receive."

How do surrender charges work?

A surrender charge is a fee for taking money out early. It usually shrinks each year until it reaches zero. The years it applies are called the surrender period.

FINRA, the regulator for brokerage firms, says surrender charges usually apply "within the first six to 10 years" after purchase. The SEC gives a sample schedule for a variable annuity. It starts at 7% and falls by one point each year.

Many contracts allow a yearly withdrawal with no charge. The SEC gives "10% or 15% of your account value" as examples. Some surrender periods can also restart. The NAIC model says an illustration should explain what would cause that to happen.

What are caps, participation rates, and spreads?

These terms apply to indexed annuities. An indexed annuity credits interest based on a market index, such as the S&P 500. You do not own the index. The insurer uses a formula to decide how much of its gain you receive. The SEC gives simple examples of each part.

• A cap is the most you can be credited in a period. With a 7% cap and a 12% index gain, "only 7% would be credited."
• A participation rate is the share of the gain you get. With an 80% rate and a 9% index gain, you would get 7.2%.
• A spread, also called a margin or asset fee, is taken off the gain. With a 3% spread and a 9% gain, you would get 6%.

The SEC adds two points. Index gains are "generally computed without including dividends." And insurers commonly can change these terms "on a periodic – such as annual – basis."

For fixed indexed annuities, the NAIC model asks for three versions of the numbers. One uses the index's most recent ten years. One uses the weakest ten-year stretch of the last 20 years. One uses the strongest. The caps and rates used can be no better than the current ones. The illustration must also show guaranteed and non-guaranteed caps, participation rates, or spreads with equal prominence.

What is a benefit base, and how is it different from account value?

A rider is an optional add-on to the contract. A common one pays lifetime income. The SEC notes that special features "often carry additional fees and charges." The NAIC model says rider charges taken from the account value must be reflected in the illustrated values.

Many income riders use a number called a benefit base, or income base. It is used to work out your income payments. It is not money you can cash out. One insurer's rider form, filed with the SEC, puts it plainly: "The Benefit Base cannot be withdrawn in a lump sum and is not payable as a death benefit."

The benefit base may grow at a stated rate. The account value may grow more slowly, and rider fees reduce it. FINRA has told firms that sales material showing a benefit base should "explain the benefit base and how it differs from the account value."

What fees appear on a variable annuity illustration?

A variable annuity invests in a menu of funds. Its value rises and falls with them. The SEC says variable annuities are regulated by state insurance commissions as well as by the SEC. Their illustrations follow SEC and FINRA rules rather than the NAIC model. The SEC lists these common charges:

• Mortality and expense risk charge (M&E): pays the insurer for the insurance risks it takes. The SEC says it is "typically in the range of 1.25% per year."
• Administrative fees: the SEC gives "typically in the range of 0.15% per year," or a flat fee of perhaps $25 or $30 a year.
• Fund expenses: you indirectly pay the costs of the underlying funds.
• Rider charges: extra fees for optional features, such as income or death benefits.
• Surrender charges: fees for taking money out early, as described above.

What questions can you ask the agent?

These are common questions to bring to the meeting:

1. Which column is guaranteed? What does it show in year 10?
2. What would my surrender value be in years 1, 3 and 5?
3. How long is the surrender period? Can it restart?
4. How much can I take out each year with no charge?
5. Which rates or fees can the insurer change after I buy, and how often?
6. What are today's cap, participation rate or spread, and what are the guaranteed minimums?
7. What does each rider cost per year? Is the fee figured on the benefit base or the account value?
8. What happens to my income if the account value reaches zero?
9. How are you paid if I buy this contract?
10. How long is the free-look period, when I can cancel and get my money back?

On the last question, the SEC says variable annuity contracts typically have a free-look period "of ten or more days."

Annuities are not FDIC or NCUA insured and are not bank guaranteed. Contractual guarantees depend on the financial strength and claims-paying ability of the issuing insurer.

An illustration takes time to read well, and there is no need to rush it. A qualified, independent professional can go through it with you, line by line. If you would like help finding one, our advisor match page explains how it works.