The main purpose of a Fixed Indexed Annuity (FIA) is protection of principle from loss.  The FIA protects your principle while crediting interest to your account. You don’t own the risk the insurance company owns the risk.  The return is generally linked to an index like the S&P 500.  The real advantage is that it gives you the investor the option of in between the low interest rates of the bank and the high risk of the market.  One of the strategies that can be effective for FIA’s is a short term laddered approach.  They do have surrender charges and offer different liquidity features depending on the company and product.  You need to make sure that you find the fixed indexed annuity that is just right for you and understand all the disclosures.

Indexed Annuity Example

Harry invests $100,000 in a seven-year indexed annuity contract with a 70% participation rate and a 12% cap. In the first year, the index is based on the S&P 500 and rises a whopping 30% for the year. Harry’s total gain is limited to 12%, because the total gain from the participation rate exceeds this amount (70% of 30% = 21%). Some contracts will keep the gains from one year and reset the caps each year, while others calculate gains on a cumulative basis for the term of the contract. State law requires that indexed contracts provide investors with at least a small amount of guaranteed interest as a form of consolation if the underlying benchmark index does not rise during the term.

Should You Consider an Indexed Annuity?

Indexed annuities should be considered by any investor who seeks higher returns than those offered by traditional guaranteed instruments, but cannot afford to risk losing principal. However, you must be comfortable enough with absorbing the loss of any real gains if the underlying benchmark index upon which the contract is based does not perform well during the contract term. Older investors who still need some exposure to equities are prime candidates for these vehicles. If you have any question or want to discuss more if fixed indexed annuity is right for your portfolio, please do not hesitate to call us at 813-964-7100. Mintco Financial Team of Independent Advisors will be glad to help you. We are independent and fiduciary advisors. We work for YOU, not for banks. Visit our website at www.MintcoFinancial.com
Source: Blog