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What Are Fixed & Fixed Equity
Indexed Annuities?
An Annuity is a contract with the insurance company in which the
company agrees to pay the annuitant a series of income payments
at specific intervals (either immediate or deferred) in return
for a premium (either a single lump sum or multiple premiums)
paid by you, (the annuitant).
Fixed Annuities earn interest at rates set by the insurance
company or spelled out in the contract, less any applicable
charges. The company guarantees it will pay no less than a set
minimum interest rate either on a deferred or immediate payment
basis.
Our firm also specializes in Fixed Equity Indexed Annuities as we have
aligned ourselves with only the top carriers in this specialized
industry. This type of annuity is an extremely popular type of
annuity that has been prevalent since about 1995 as consumers
have put over $25 billion into them as of the middle of 2006.
They are in the family of fixed annuities that provide a minimum
interest guarantee with excess interest credited based on an
external equity index such as the S&P 500 or the NASDAQ. This
type of annuity is also a contract with the insurance company
and is considered to be a safer alternative than a variable
annuity as one's annuity premium is not buying any shares of
stock and is primarily designed to protect the contract owner
from loss of principal.
At Senior Secure Solutions, our goal is to educate clients' and
to help them determine which product best suits their needs.
Many of our clients that have indexed annuities like the fact
that they can achieve competitive returns on their portfolio
without the risk of a downside market or loss of their principal
that could adversely affect their working or retirement
lifestyle.
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Index
This is the external equity reference
that is used to gauge interest earned or benefit
provided on the equity indexed annuity, e.g. S&P
500, NASDAQ, etc. |
Averaging
Using the average of an index's value
rather than the actual value of the index on a
specified date. This averaging may occur at any
point during the entire term of the annuity. |
Participation Rate
This is the percentage factor that
determines how much of an increase in the index
will be used to calculate index-linked interest. |
Cap
Rate or Cap
Some annuities will put a limit, or cap, on the
gain the index-linked interest rate will allow
on the annuity; the maximum rate of interest the
annuity will earn. |
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Term
Equity indexed annuities have terms in
which the interest is calculated; in others
words, a length of time the annuity contract is
in effect. Most are from one to ten years. |
Interest Bonus
Annuity terms, often 10 years or longer,
will give the annuitant an interest bonus
credited at the beginning of the contract with
no risk of losing that bonus. |
Surrender Charges
Similar to CD's and Money Market
products, all index annuities charge a penalty
if the policy is cashed in prior to the end of
the term and normally the surrender charges are
lower as one nears the end of the annuity term.
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Margin/Spread/Fee
Some annuities subtract an administrative
charge when the index produces a positive
interest rate. This is usually instead of having
any participation rate so that the company will
credit you the full interest gain less a
pre-determined "spread". |
"Zero
is your Hero"
This means that the floor, the minimum
index-linked interest rate you will earn, is 0%.
This assures the annuitant that even if the
index decreases in value, the index-linked
interest you will earn will be zero and not
negative. However, most of these annuities have
minimum interest guarantees or minimum
guaranteed value. |
"Lock in your gains, take no losses"
One of the benefits of equity-indexed
annuities is that any gains from the prior years
cannot be lost—those are locked in (less
surrender charges if you cashed in the annuity
early) combined with the "zero is your hero"
feature. |
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