Equity Index Annuities
What are
Equity-Indexed Annuities?
It is a fixed annuity,
either immediate or deferred, that earns interest or
provides benefits that are linked to an external equity
reference or an equity index. The value of the index
might be tied to a stock or other equity index. One of
the most commonly used indices is Standard & Poor's
500 Composite Stock Price Index, which is an equity
index. The value of any index varies from day to day and
is not predictable.
When you buy an
equity-indexed annuity, you own an insurance contract.
You are not buying shares of any stock or index.
While immediate
equity-indexed annuities may be available, this guide
will focus on deferred equity-indexed annuities.
How Are They Different
From Other Fixed Annuities?
It is different from
other fixed annuities because of the way it credits
interest to your annuity's value. Some fixed annuities
only credit interest calculated at a rate set in the
contract. Other fixed annuities also credit interest at
rates set from time to time by the insurance company.
Equity-indexed annuities credit interest using a formula
based on change in the index to which the annuity is
linked. The formula decides how the additional interest,
if any, is calculated and credited. How much additional
interest you get and when you get it depends on the
features of your particular annuity.
The annuity, like other
fixed annuities, also promises to pay a minimum
interest rate. The rate that will be applied will
not be less than this minimum guaranteed rate even if
the index-linked interest rate is lower. The value of
your annuity also will not drop below a guaranteed
minimum.
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