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Should I exchange my existing annuity for a new one?

Read all the sales documents yourself and make sure you are aware of every potential fee. Never rely on the salesperson's explanation alone.

Be especially cautious if anyone suggests you exchange your existing annuity for a new annuity. Annuity exchanges are known as 1035 swaps, after the section of the IRS code that regulates them. A salesperson may tell you a 1035 swap is a great deal, because it allows you to get the features of a new annuity without incurring any taxes. What you might not be told is that the exchange earns a fat sales commission for the insurance agent.

What's more, by moving into a new annuity, you will start a new surrender period. For example, say you have owned an annuity for 10 years. You probably could close out your account without paying a surrender charge. But if you swap that annuity for a new one, you will be hit with a surrender charge of about 7% to close the account within the next seven years or so. You can learn more about annuities, and how to protect yourself, at the Securities and Exchange Commission Web site.