Index Annuity

Posts tagged "index annuity"

When the markets are volatile and the interest rates low, investors turn to relative safer investment options such as an index annuity. Let us quickly try to understand the term and what are the advantages and disadvantages of investing in this kind of an investment vehicle. An Index annuity is an investment vehicle which is closely linked to some leading index such as the S&P 500. If the stocks rise then investors benefit from the rise in stock prices. If the stock markets fall, investors are safeguarded against the falling stocks which assure a minimum return of 3%. This is the biggest advantage of an index annuity. While on one hand an investor gains from rising stocks a falling market does not erode the base capital and still ensures a small return. Financial institutions which have annuity products make their money from the spreads. In a rising market they make more profits than what is passed down to the investor. The profits so accrued during a bull market are used to compensate investors during a bear phase. The index annuity is a relatively newer product in the annuity space. Earlier annuity products only varied around variable equities and fixed annuities [...]

Can An Equity-Index Annuity Guarantee What You Want?

Fixed annuities guarantee your income based on current interest rates. Facing a long retirement horizon, you may want to consider relying a little on the markets to enhance your annuity income. An equity-index annuity offers that chance, but you must understand how it works. Equity-index annuities combine features of traditional insurance products (guaranteed minimum return) and traditional securities (where the return is linked to equity markets). Depending on the mix of features, an equity-index annuity may or may not be a security. In fact, the typical equity-index annuity is not registered with the SEC (but may be in the near future and become classified as a security). Here’s how they work: During the accumulation period – when you make either a lump sum payment or a series of payments – your insurance company credits you with a return based on changes in an equity index. The S&P 500 is a typical index although some equity index annuities may be based on indexes such as EAFE, he NASDAQ 100 or the Wilshire 5000. The insurance company typically guarantees a minimum return of 90% of the premium plus a minimum interest rate. With an equity index annuity, surrender charges can last for [...]