What are Fixed Indexed Annuities (FIA)?
These are fixed annuities that enable you to participate in market gains without the risk of losing principal when the market goes down. They are linked to an option on a market index like the Dow Industrial Average, the Standard & Poor’s 500 or the NASDAQ composite. Your interest rate is positive when your market index is up, but your interest rate does not go negative when your market index is down.
Fixed Indexed Annuity Performance
Indexed Annuities do not give you the full gain of the market. Some have a cap to your interest rate, and some limit your market participation percentage, others have a spread rate. For example if the market goes up 10% one year and you have a participation rate of 80%, you would receive an 8% gain. The point is that if the market gains 20% one year, you more than likely won’t have the full 20% gain but you will experience a significant portion of that increase. On the flip side if the market suffers a 20% correction you will not have a negative interest rate, so your principal is safe in that down market. Given that you never experience a loss of principal, over time FIA’s can and have outperformed the market. The surprising truth of the matter is that over several five and ten year periods, fixed indexed annuities have outperformed a pure market play because you never have a losing year.
Fixed Index Annuity Features
- Market Linked Yield – When the market goes up, so does your portfolio. An option links gains in the market to your annuity value.
- Guaranteed not to lose principal – Upside potential with no downside risk. When the market loses value, your annuity does not. This is the fixed part of the annuity.
- Guaranteed Minimum Return – Fixed Indexed Annuities offer a sub-account with a fixed rate minimum interest rate. You can choose how much of your principal will earn the fixed interest. If the market is flat or drops, you get your guaranteed rate instead of a loss.
- Tax Deferred Growth – As is the case with all annuities, your earnings grow tax deferred. This enables years of compound growth without taxes cutting into your earnings. Once you draw on the funds, you pay income taxes on the earnings only.
- Participation Rate, Caps, Spreads – While your gains grow with the growth of the market, they are limited by either a cap, spread or market participation rate.
- Protecting Your Gains – Once earned, your annual gains are locked in. If the market performs poorly, your fixed rate funds grow by your guaranteed interest rate while your funds tied to the change in the market have a zero percent interest rate. If the market does well, you gain your share of that performance. At the end of the year, those gains are yours.
Disclaimer: This is not investment advice. All information on this website is intended for your educational purposes only and is not intended to make a recommendation that you purchase an annuity. We are not liable for any potential damages that may be incurred from this information or your use of it. You should always consult a licensed financial or insurance professional and complete a suitability review before investing. Detailed product information such as Surrender Yields, Premiums, Age Restrictions, Riders, Fees and Withdrawals provisions may vary by product, and can vary based on state availability and are subject to change without notice. Some products are not available in all states, and will be provided by a licensed Annuity Agent.
The optional lifetime income benefit riders are used to determine the lifetime payouts only and are not available for cash surrender or as a death benefit unless stated in the annuity contracts and any attached riders, endorsements and amendments. Some fees may apply which are listed in your contract. Surrender fees apply to the base contracts. All guarantees are based on the financial strength and claims paying ability of the insurance company. They are not FDIC or NCUA insured. It is very important that you read all of the insurance contract disclosures carefully before making any purchase decisions. This does not represent taxation, legal, or investment advice.