The world of annuities — a specific type of insurance product — is often confusing, filled with ambiguities, misinformation, and feardriven sales pitches. In fact, Morningstar reported that 44% of consumers rated their knowledge of annuities a D or F.

It’s a complex field that is constantly reinventing itself to meet the needs of the market, as well as overcome buyer resistance. Yet, annuities can be an essential part of your retirement plan when used correctly.

While there are entire books written about annuities today, a simple way to begin learning about them is to identify the right questions to ask before making your selection. We’ve listed just a few here to ask your advisor or insurance agent, but we’ll cover some of the terminology and options in greater detail early in 2016.

1. What’s the purpose of this product? — How does it fit with my overall retirement plan? Is it another option to use when investing for retirement? Is the goal to provide a steady stream of income? Will it simply add another layer of security to ensure my financial needs are covered during retirement? Are there other objectives?

2. What type of annuity is it? — There are two common options: Immediate, in which you immediately begin receiving a guaranteed stream of income; or deferred, in which your contributions grow tax-deferred until a specified date or age. We’ll cover additional options in a future issue.

3. How are the payment(s) made? — Here again, you typically have two options: A single premium, where you make one lump-sum payment; or a flexible premium, where you make multiple payments over a specified time period.

4. Is this the best solution in today’s market to accomplish my objectives? — How does it complement what I’m already doing? Is there a better product based on my age, goals, and risk tolerance? Ask if they are willing to put this in writing.

5. What’s the cost? — There’s generally a cost — or sales fee — for the stated protection the annuity provides, so what’s the cost for this specific product? When is it paid? Up front? Every year? Is it a fixed amount?

6. Is there a surrender charge or penalty if I don’t want to keep the policy? If so, how much is it? — The guaranteed returns on most annuities come with fairly restrictive terms, which means you could give up some flexibility or face higher costs for switching products. This is to compensate the insurance company for the security it provides. The fee is generally referred to as a surrender charge. Ask how much it is based on how long you keep the policy (first-year surrender charges can be as high as 50%), how long until there is no surrender charge (which can sometimes last up to 10 years), and what happens if you need the money for an emergency?

7. What’s the rate of return? — Is it fixed? Is there an adjustment for inflation? Is it variable? What are your options?

8. Does it cover just me or will it generate income for a spouse if I should pass away? — Today, most policies protect a single life…or you can elect a joint life. In the latter case, the policy will also provide income protection for a surviving spouse. Is there the option of paying more (to provide joint coverage), or electing to take a lower payout every month?

9. If a steady stream of income is my goal, how long will it pay (either for me or a spouse)? — Obviously, the longer the guaranteed coverage, the greater the cost since the insurance company must cover their potential risk of your longevity. Discuss your options.

10. What happens to my investment when I die? Are there any benefits for my heirs? — Some fixed annuities provide guaranteed benefits for life, but any residual cash or payments cease upon the death of the policy holder. There is nothing for the beneficiaries since the remaining cash becomes the property of the insurance company. Other policies provide a death benefit as well, but again, you may not want the added cost if there are other protections in place for your heirs.