An indexed annuity is a contract issued and guaranteed by an insurance company. You invest an amount of money (premium) in return for protection against down markets; the potential for some investment growth, linked to an index (e.g., the S&P 500® Index); and, in some cases, a guaranteed level of lifetime income through optional riders.

When They Evolved


Index annuities burst onto the seen in the mid-1980's, originally to compete with more vulnerable Variable Annuities that are subject to more fees and market risk. The index annuity offers market-linked gains without market risk and will usually outperform a fixed interest annuity. 

How Do They Work


Index annuities are simply a fixed with an alternative earnings strategy based on the performance of indices such as the S&P or Dow Jones, etc. When these indices increase you can earn a better rate of return that the fixed interest accounts. 

What Are The Benefits


Index annuities allow conservative people to participate in market-linked indices without risking any of their principal or previously earned interest.   Therefore they will not receive all of the returns of an upmarket, however, they will never lose back any previous earnings. 

In short, an index annuity allows the owner to benefit from up and down markets when they have an annual or bi-annual reset.  Why? Compared to an investment in a stock or mutual fund, the owner will receive all the earnings, minus management fees, however, they can potentially lose those earning in down years including the cost of management fees.  An index annuity will be credited usually once a year and some things once every two years depending on the type of indices you are in.  If the indices are positive your will most likely receive a credited interest rate.  That interest in locked in a becomes part of your principal and can never be lost.  In turn if the indices are negative, you may not earn anything for that period, however, your new starting point in the indices will begin from that point.  This means you never have to make up losses before you earn again.  

For more information and to determine if an index annuity is right for you, contact our office for a complimentary consultation and income analysis.