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How do I know the company will honor my future payments?

It is possible you could lose your money if the insurance company you invested with goes belly up. When you purchase a deferred annuity you are giving an insurance company money today, and you may not receive your payments for a number of years (the earliest you can make withdrawals from an annuity without incurring a 10% penalty is age 59 ½). So it is critical to purchase annuities only from insurance companies that you're confident will be in business when you retire.

Check the insurer's credit rating, a grade given by credit bureaus such as A.M. Best, Standard & Poor's and Moody's that expresses the company's financial health. Each rating firm has its own grading scale. As a general rule, limit your options to insurers that receive either an A+ from A.M. Best or AA- or better from Moody's and S&P. You can find the ratings online, or get them from your insurance agent.

There are state guaranty funds that protect annuity owners if an insurance company fails, but the coverage is limited and varies from state to state.

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