First, annuities are long term, not short term, investments. Think of them as part of your permanent investment portfolio. Annuities provide tax deferred accumulation. They can also be used to provide tax favored income to begin immediately or at a future time. This income can be for a pre-determined length of time, or for the rest of your life.
Second, you should not use your emergency money for annuity investments. Annuities are not as liquid as other investments so they should not typically be used for emergencies. Most experts agree that 3-6 months of emergency money will suffice.
Third, understand the unique benefits of annuities and how they can fit into your financial plan. First and foremost they accumulate earnings tax deferred. You are only taxed on earnings that you take out and not on your principal, unless the annuity income or distribution is from a qualified plan or IRA. In many states annuities are protected from the judgment claims of creditors. They also avoid the state issue of probate.
The other benefits all have a lot of details so be careful. If an advisor tells you that your income is state guaranteed, ask how. Some annuities have fees associated with them. Always make sure you understand each benefit completely. Case in point, one very popular benefit (rider) increases your principal by a certain percentage rate each year no matter what the market does. The catch is that the amazing guaranteed rate is not available as a lump sum withdrawal. It must be taken out over many years. This is one reason that annuities have a bad reputation. That particular income rider is a fantastic benefit for income needs, but useless if you need a lump sum in a certain amount of years.
And last but not least you should always work with a competent advisor to make sure an annuity is right for you and your exact financial situation. There are many different type of annuities that accomplish different goals. You can usually find one that fits your specific needs. Learn how annuities work and you could find one of the best investments you will ever own.