What is an Index Annuity?
An index annuity is a fixed annuity offered by an insurance company. This index annuity earns a minimum rate of interest and offers the potential for excess interest based on the performance of an index. There are two major types of annuities in the world- fixed and variable. Variable annuities operate a lot like mutual funds in that most of the investment return (and risk) are passed to the investor. Fixed rate annuities operate more like an account at a bank paying a stated rate of interest. Fixed annuities pay a minimum guaranteed rate and the potential for more interest depending on the performance of an equity or bond index.
Index Annuities are becoming a very popular alternative to the fixed rate deferred annuity. Index Annuities offer the consumer the opportunity to track, for example, the S&P 500 Index, without subjecting the investor’s money to potential loss. With the Index Annuity the consumer shares in the gains and avoids the losses associated with the stock market. Some advisors call the Index Annuity: “Equity Index Annuities” and some advisors call Index Annuities: “Fixed Index Annuities.” All have been confusing the public. I’ll stick with calling this product an Index Annuity. Caution: Some advisors paint a picture that Index Annuities are the best thing since sliced bread with the potential upside being significant with no downside. That kind of statement would fall into the category of “too good to be true.” Index Annuities are simple yet complex. Many Index Annuities have a cap which limits how much of the gain you are allowed to make in a roaring bull market. Some offer what is called a “pa
There are two major types of annuities in the world, fixed and variable. An indexed annuity is a deferred annuity whose return is tied to the performance of a particular equity market index. Your investment principal is usually protected against severe market downturns, in that you may have an annual return of 0% but not less than 0%. However, earnings are generally capped at a fixed percentage, so any index gains that are above the cap are not reflected in your annual return. Since interest is based on an index, isn’t this like a variable annuity? No. If a variable annuity account goes down, you could lose principal. Index annuity principal is protected from market risk – you can’t lose principal if the index declines. Variable annuity gains are typically not locked in. Once index-linked interest is credited in an index annuity it cannot be lost, even if the index subsequently declines. And, variable annuities include reinvested dividends, neither the index nor index annuities reflect
by Steven Hart Send Feedback to Steven Hart Annuity More Details about Annuity here. Translate to Spanish Translate to French Translate to German Translate to Italian Translate to Portuguese Learn how your ad can appear here! Feature Articles: CAR FU: There Will Be Blood… Spending Addiction – How to Save Your Marriag… Preforeclosure Investing Secrets Revealed… Foreclosures and Shortsales: Constructing a K… Weightlifting Coach Shares Tax Lien Investing… Free Webinar on Investing In Tax Lien from Af… Tax Lien Lady’s Report: Tax Deed Sales in PA… Cut Expenses: 6 Ways to Cut Homeowner Insura… Click here for more >> More and more investors are looking into annuities for their future financial situation. However, many of them are asking the common question: what is an index annuity? An index annuity is one of the more popular choices to be introduced to the financial spheres in the last few years and investors want to learn more about its structure and benefits. If you want t
