The short version

An annuity is a contract with an insurance company. The word "annuity" gets used as if it means one thing, but it's really a family of products that differ along two main lines: how your money earns interest and when the income payments start. Once you understand those two questions, the whole menu makes sense.

This guide walks through the main types in plain English, explains the trade-offs each one carries, and is clear about which ones The Jordan Insurance Agency actually works with. This is education, not investment advice — for a recommendation matched to your own situation, you'd want to sit down with a licensed professional, and for tax questions, a tax advisor.

One thing that's true of every annuity

Before we split them apart, here's what they all share. Every annuity is an insurance contract, not a bank product. That means an annuity is not FDIC-insured. The guarantees inside it rest on the issuing insurance company's financial strength and claims-paying ability, and, if that insurer were to fail, on the North Carolina Life & Health Insurance Guaranty Association up to state limits. That's a very different backstop than the FDIC coverage on a bank CD, and it's worth keeping in mind as you read the rest of this page. We cover it in depth in our guide to whether annuities are safe.

Sorting annuities two ways

It helps to picture two separate dials rather than one long list:

  • Dial one — how it earns: fixed, fixed indexed, or variable.
  • Dial two — when it pays: immediate or deferred.

A real contract is a combination of both dials. You might have a deferred fixed annuity, or an immediate income annuity, and so on. Let's take the dials one at a time.

Dial one: how the annuity earns interest

Fixed annuities (including MYGAs)

A fixed annuity is the most straightforward type. It's a contract where the insurance company guarantees your money will earn at least a set minimum interest rate during the accumulation phase, and the insurer declares the rate. You typically hand over a lump-sum premium, and the company credits interest, which usually compounds and is added to your principal.

A very common version is the MYGA — a multi-year guaranteed annuity — which locks a single guaranteed interest rate for a set multi-year term. Terms are commonly offered in 3-, 5-, 7-, and 10-year lengths. People often compare a MYGA to a bank CD because both give you a known rate for a known term; we lay that comparison out in our fixed annuity guide.

The trade-offs to weigh:

  • Surrender period and surrender charges. Fixed annuities have a surrender period during which taking out more than the allowed amount triggers a surrender charge. In North Carolina, surrender charges typically apply during the first 5 to 15 years from the policy's issue date. The charge is set in your contract and declines over the surrender period, reaching zero at maturity.
  • Reduced liquidity. Your money is meant to stay put for the term. Many contracts do allow a penalty-free withdrawal each year — commonly up to about 10% of the account value — but you'll want to confirm the exact figure in your own contract.
  • Rates change and vary. The guaranteed rate is set by the carrier and depends on the term, the company, and the broader interest-rate environment, so two contracts can offer different rates for the same length.

Fixed indexed annuities (FIAs)

A fixed indexed annuity is a type of fixed annuity, but instead of a flat declared rate, it earns interest based on the change in a market index — such as the S&P 500, the Dow Jones Industrial Average, or the Nasdaq — over a set period called the index term. The insurer uses a formula to decide how much interest to credit at the end of each term.

The headline feature is the 0% floor: the credited interest rate is guaranteed to never be less than zero, even if the index falls. If the index drops over the term, zero interest is added and your annuity value won't go down because of that drop — as long as you don't withdraw money. That's why FIAs appeal to people who want some link to market performance without the risk of a negative return eating their principal. We go deeper in our guide to the fixed indexed annuity.

One point that trips people up: you are not directly invested in the market. When you buy an indexed annuity, you don't own the stocks or the index. You get interest linked to a portion of the index's gains through a formula.

The trade-offs to weigh — this is where the fine print lives:

  • Caps. A cap rate is the maximum interest the annuity can credit in an index term. As a mechanics illustration only (not a current or available rate): if an index rose 12% but the cap were 7%, your credit would be limited to 7%.
  • Participation rates. This sets how much of the index's increase is used to calculate your interest — often less than 100%. As an illustration only: a 75% participation rate would credit 75% of the index's gain.
  • Spreads (also called margins). A spread is a percentage the insurer subtracts from the index change. As an illustration only: a 10% index gain with a 3.5% spread would credit 6.5%.
  • Rider costs and fees. Optional features (riders) usually cost extra, and withdrawals, fees, and rider charges can still reduce your value even in a flat or down year.

Those cap, participation, and spread numbers are illustrations of how the mechanics work — they are not current market rates. Actual figures are product-specific and change over time. How they interact is the whole subject of our guide to annuity indexing, caps, and participation rates.

Variable annuities (what we do NOT do)

A variable annuity earns returns based on investment subaccounts you choose. Those returns are not guaranteed, and the account value can go up or down — meaning you can lose principal. Industry regulators position indexed annuities as carrying more potential return than a fixed annuity but less risk than a variable annuity, precisely because a variable annuity puts your principal at market risk.

Variable annuities are securities that require a securities license to sell and advise on. They are out of scope for The Jordan Insurance Agency — we work only in the fixed and fixed-indexed lane, and we mention variable annuities only so you can tell the difference. There's also a separate, distinct product called a Registered Index-Linked Annuity (RILA), which is an SEC-registered security that can lose money and should not be confused with a principal-protected fixed indexed annuity. RILAs are likewise out of our scope. If you want the full three-way comparison, see fixed vs. indexed vs. variable annuity.

Dial two: when the income starts

Independent of how it earns, an annuity is also either immediate or deferred based on when it begins paying you income.

Immediate annuities

With an immediate annuity, you make a single payment to purchase it and typically start receiving income payments within about a year. People often use these at or near retirement when the goal is to turn a lump sum into a stream of income right away.

Deferred annuities

A deferred annuity begins paying income at some later date you choose. It has two phases: an accumulation period, when the contract value can grow, and a payout period, when it makes income payments to you. Most fixed and fixed-indexed annuities that people buy for growth-with-protection are deferred annuities. Our guide on guaranteed lifetime income covers how the payout side works.

Where taxes come in — the same for the fixed lane

Across these types, one tax feature is shared: interest credited inside a non-qualified annuity is not taxed while it stays in the contract. That's the tax-deferred growth annuities are known for — you're taxed only when you withdraw, and then at ordinary income rates.

Two rules matter no matter which type you choose:

  • The 10% early-withdrawal penalty. Taking taxable amounts out before age 59½ generally triggers an additional 10% federal tax on the portion includible in income, unless an exception applies. This IRS tax is separate from, and on top of, any insurance-company surrender charge.
  • Required Minimum Distributions (RMDs). If the annuity is inside a tax-deferred retirement account, RMD rules apply. Under current law, the RMD start age is 73 (rising to 75 for those born on or after January 1, 1960), and an RMD itself cannot be rolled over.

Because annuity gains come out taxed as ordinary income and can carry that pre-59½ penalty, the tax picture is a real part of choosing a type — a good reason to loop in a tax advisor for your own numbers.

A quick, clearly-labeled hypothetical

The following is a made-up illustration to show how the "how it earns" and "when it pays" dials combine — it is not a quote, not a recommendation, and not a real product.

Imagine a Charlotte couple, both 60, with a lump sum they won't need for at least ten years. They value not losing principal in a down market but would like a little more upside than a flat rate. A deferred fixed indexed annuity is one shape that fits that description on paper: deferred (income later, matching their ten-year horizon) and fixed indexed (a 0% floor for principal protection with index-linked upside limited by a cap, participation rate, or spread). A different couple who need income to start now might instead look at an immediate annuity. Same family of products; two very different jobs. The point isn't that either shape is "right" — it's that naming the two dials turns a confusing menu into a manageable choice, which is exactly what a licensed agent helps you do.

Two more features every type shares in North Carolina

Beyond the two dials, a couple of consumer protections apply across the fixed and fixed-indexed types sold here, and they're worth knowing before you compare any of them.

The free-look period

After you receive an annuity contract, North Carolina law gives you a free-look period — a window to change your mind, return the contract, and get a full premium refund without a surrender charge. In North Carolina that window is 10 days, and it extends to 30 days if the annuity replaces existing life insurance or annuity coverage. Whichever type you're looking at — a fixed, a MYGA, or a fixed indexed contract — that same right to return applies, so you're never locked in the moment you sign.

How a fixed annuity compares to a bank CD

Because a MYGA and a bank certificate of deposit both promise a known rate for a known term, people naturally line them up. It's a useful comparison as long as you remember they are not the same kind of product:

  • The safety net is different. A bank CD is insured by the FDIC up to $250,000 per depositor, per insured bank, per ownership category. An annuity is not FDIC-insured; its backstop is the issuing insurance company's claims-paying ability and, if that insurer fails, the North Carolina Life & Health Insurance Guaranty Association up to state limits.
  • The tax treatment is different. CD interest is generally taxable in the year it's credited, even if you don't touch it. Interest inside a non-qualified annuity is tax-deferred and taxed only when you withdraw it.
  • The liquidity is different. CDs tend to have shorter terms with a bank early-withdrawal penalty; a MYGA is generally less liquid across a multi-year surrender period, though many contracts allow a penalty-free annual withdrawal. And before age 59½, taking earnings out of an annuity can add the IRS 10% tax on top of any surrender charge.

None of that makes one automatically better than the other — they simply do different jobs. Our fixed annuity guide walks through the comparison in more depth.

Choosing between the types: questions that narrow it down

Once you can name the two dials, picking a type becomes a series of plain questions rather than a leap of faith. None of these are questions we answer for you in an article — they're the ones a licensed agent helps you work through against your own situation:

  • When would you want the income to start? If you need a stream of payments now, an immediate annuity is built for that. If the money can sit and potentially grow for years first, a deferred annuity fits — and most fixed and fixed-indexed contracts bought for growth-with-protection are deferred.
  • How much movement can you stomach in the earnings? If you want a single known rate and the simplest possible contract, a fixed annuity or MYGA is the plainest choice. If you'd accept a variable credited rate — capped and limited by a participation rate or spread — in exchange for a link to an index and a 0% floor, a fixed indexed annuity is the type to examine.
  • When might you need the money? Every one of these types carries a surrender period, which in North Carolina typically runs somewhere in the first 5 to 15 years from issue. If there's a real chance you'll need more than the penalty-free withdrawal allowance during that window, that's a reason to size the premium carefully or reconsider the term — not a detail to discover later.
  • How old are you, and where is the money coming from? If you're under 59½, the IRS 10% early-withdrawal tax is a live consideration on taxable amounts. And if the money is inside a tax-deferred retirement account, RMD rules will eventually apply. Both are tax questions, so they're worth taking to a tax advisor alongside the insurance conversation.

Notice that none of those questions is "which type has the best rate?" That's deliberate. Rates change constantly and vary by carrier and term, so chasing a headline number is the wrong way to start. The better starting point is matching the shape of the product to the job you need it to do — and only then comparing the specific contract terms across carriers.

How the types line up at a glance

  • Fixed / MYGA — a set guaranteed rate for a term; simplest; surrender period and reduced liquidity are the main trade-offs.
  • Fixed indexed — interest tied to an index with a 0% floor; more potential movement than a fixed rate; caps, participation rates, spreads, and rider costs are the trade-offs to read carefully.
  • Variable — market subaccounts that can lose principal; a security requiring a securities license; out of scope for The Jordan Insurance Agency.
  • Immediate — income starts right away from a single premium.
  • Deferred — grows during accumulation, pays during a later payout phase.

How The Jordan Insurance Agency helps

The Jordan Insurance Agency is an independent, licensed insurance agency based in Charlotte, North Carolina, serving clients across the state. We are not a financial planner or investment advisor, and we don't sell variable annuities or other securities. What we do is work in the fixed and fixed-indexed annuity lane — and because we're independent, we represent multiple carriers rather than a single company.

That lets us lay the relevant options side by side and explain, in plain English, exactly where they differ: the guaranteed rate and term on a fixed or MYGA contract; the cap, participation rate, or spread and the 0% floor on a fixed indexed contract; the surrender period and any penalty-free withdrawal allowance; and the cost of any optional rider. We'll also point you to a tax advisor for questions about the 10% pre-59½ penalty or how an RMD affects a rollover, because those are tax decisions, not insurance ones. And we'll be candid about when an annuity may not be the right fit at all. There's no cost to sit down and get the plain-English version — when you're ready, reach out to The Jordan Insurance Agency and we'll walk you through the types one dial at a time.