What Are Disadvantages Of Annuities? 
In general , there are two types of annuities : variable annuities and fixed annuities . Variable annuities are often described as mutual funds inside an insurance contract . Variable annuities have fees that are higher than fixed annuities , and while they are subject to market gains , they can also be subject to market losses . It is possible to lose principal in a variable annuity . Surrender charges apply and can be significant in the first few years . Insurance companies take your annuity money and make long-term commitments using that money and if you decide to pull your money out on an accelerated schedule other than that which was originally agreed upon , they can lose out on their long-term investment . Fixed annuities , which include indexed annuities , are not subject to market losses and most come with the commitment to `` never go down '' in value . Fixed annuities have penalties for early withdrawal and they are significant in the first few years . You are generally allowed an amount you can withdraw `` penalty free '' each year - around 10 % . Fixed annuities are not FDIC insured . They are based on the `` claims paying ability and financial strength of the issuing insurance company '' . Look at the history of insurance companies over the past 100 + years and you 'll probably favor what you see over the banking industry . While there are some `` annuity bashers '' out there , they generally have a product they are trying to sell that suits their agenda or wallet . Annuities should be considered a long-term product and if you purchase an annuity , you should only do so with money you are certain will not be needed over the life of that annuity . There are penalty free withdrawal provisions and you should be aware of what those are . Annuities have lots of advantages and certainly some disadvantages as well . As always , the suitability of a financial product is based on your specific situation and needs and a licensed , qualified financial professional should be sought out to help . 