What is a Fixed Index Annuity ?
This is a fixed annuity that offers crediting options that are based upon the change in a market index, if any. The most common used index is the S&P 500®. As the index moves, the rate of change is used to calculate value changes in the annuity value. There is always some limitation based on interest caps, index spreads, participation rates. They also have a minimum guaranteed base rate. These annuities offer interest based on changes in the index alongside guarantees on the initial premium.
The differentiating element of an Indexed Annuity is that it combines most of the features of a fixed annuity with the potential to earn interest based on the upward movements of an equity or bond index. Indexed annuities credit interest based on a specific index such as Standard and Poor’s 500 Composite Stock Price Index or Lehman Brothers Aggregate Bond Index. • Returns are linked to an index and offer the potential to out-pace inflation. • Protection in the policy against downside market risk. • Interest accumulation is tax-deferred, allowing earnings to compound and accumulate faster than if they were currently taxed.
