A fixed index annuity is an insurance contract that provides the guarantees of fixed annuities combined with the opportunity to earn interest based on changes in an external market index – without directly participating in the market. Most fixed annuities only credit interest calculated at a rate set in the contract. Fixed indexed annuities credit interest using a formula based on changes in the index the annuity is linked to. The formula decides how the additional interest, if any, is calculated and credited. How much additional interest you get and when you get it depends on the features of your particular annuity.

Features of a fixed-indexed annuity include:

  • Various crediting methods
  • Allocation options that give you choices for your money
  • Premium bonuses
  • Long-term surrender charges

A fixed indexed annuity can grow at a guaranteed, fixed interest rate or at a potentially higher rate based upon a portion of the performance of an outside index, such as the S&P 500® Index. The interest crediting options pay interest at a rate determined by a formula which considers any increase in the outside index, often subject to a “participation rate”, and/or “cap, and/or “spread”. Some fixed index annuities allow the insurance company to change participation rates, cap rates, or spread/asset/margin fees either annually or at the start of the next contract term. If an insurance company subsequently lowers the participation rate or cap rate or increases the spread/asset/margin fees, this could adversely affect your return.

All indexed annuities have a floor of zero, meaning the absolute worst case scenario due to a downturn in the market index is a consumer might receive no interest in a particular year. However, a policy owner can never lose any previously credited interest or premiums paid. The guarantee is based on the insurance company’s ability to pay.

Many fixed indexed annuities can protect your premiums paid and earned interest from market loss and can give you a guaranteed income stream. Also, many fixed indexed annuities offer a guaranteed lifetime income rider at an additional cost. This rider can provide a paycheck for life!

If you would like more information about fixed indexed annuities, please call Kades-Margolis at (800) 433-1828, ext. 4. We will have one of our professional financial advisors contact you, or click here and fill out the e-form and submit.

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