Fixed Index Annuities

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Fixed Index Annuities

A Fixed Index Annuity (FIA) has interest rates that are linked to growth in the equity market as measured by an index such as the S&P 500. The FIA owner enjoys the upside potential of specific indices, but because you’re not actually participating in the Market, the money in your annuity (your principal) is not at risk. Subject to fixed minimum guarantees, the value of an FIA can only increase due to market growth _ it will never decline due to market volatility. There are many variations in product design. No two of the FIAs are exactly alike, and some are very different from each other. However, all the various types fall into three general categories: annual reset, point-to-point, and annual high-water mark with look-back. The following is a simple definition of each.

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Annual Reset – Also known as the annual ratchet design, the annual reset design resets the starting index point annually. It also credits index increases (interest) annually and compounds annually.

Point-to-Point – The point-to-point design measures the change in the index from the start of the term to the end of the term.

Annual High-Water Mark with Look-Back – The annual high-water mark with look-back can be viewed as a variation on the point-to-point design, except that it measures the index from the start of the term to the highest anniversary value over the term.
* Some annuities allow the insurance company to change participation rates, cap rates or spread/asset/margin fees either annual or at the start of the next contract term. If an insurance company subsequently lowers the participation rate or cap rate or increases the fees, this could adversely affect a client’s return. Therefore, a prospective client must carefully review his or her contract in order to examine these issues.

Fixed Index Annuities are not a direct investment in the stock market. They are long term insurance products with guarantees backed by the issuing company.  They provide the potential for interest to be credited based in part on the performance of specific indices, without eh risk of loss of premium due to market downturns or fluctuation. They may not be appropriate for all clients.