How does an Index Annuity Work?
Like all annuities, an index annuity is a contract with an insurance company for a specific period of time initially or for which you may choose to hold for life. An index annuity tracks a particular stock market index, such as the Standard & Poor’s 500, S&P MidCap 400, Russell 2000 Index, NASDAQ-100, DJIA, Dow Jones Euro STOXX 50, Lehman Brothers US Aggregate Bond, etc. One or all of these indexes may be available in the index annuity you purchase. Your rate of interest earned will be a pre-set percentage of the increase in that index in the corresponding index year. There is also a guarantee against losses. The surrender period on an index annuity is typically longer than other annuity surrender periods – about 7 to 14 years (some are now available at 4 or 5 years – but remember, in order to achieve a higher return you must give it a longer time frame to work just as any other instrument). Can you give me an example of how the pre-set percentage works? Yes. Let’s say that your index
