What Is a Fixed Index Annuity & How Does It Work?

In this video Ryan discusses the fixed index annuity also known as the equity index annuity.

A fixed index annuity offers the ability to grow money with safety by mirroring the performance an external index such as the Dow Jones with limited upside potential and no downside risk.

They can also be used as a personal pension plan allowing an account older to create their very own paycheck for life. Other benefits include long-term care coverage. Many use Fixed index annuity as an alternative to bonds.

A fixed index annuity works by combining the features of a fixed annuity with the potential for higher returns linked to a stock market index.

The policyholder’s investment is credited with interest that is tied to the performance of a specific stock market index, like the S&P 500. However, the policyholder’s principal is guaranteed not to decrease due to market fluctuations.

The insurance company calculates the return based on the change in the index, up to a predetermined cap. The return is generally credited to the policy annually. The policyholder typically cannot access the funds in the annuity without incurring surrender charges, until a specified date or event, such as retirement.

The policyholder is also generally protected from market downturns, as the value of the investment will not decrease below the guaranteed minimum.


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