Equity Indexed Annuity

The equity indexed annuity is unlike any financial product in the marketplace. It is a fixed product with a greater potential for return than a fixed annuity. The risk of losing your money due to market loss does not exist with a fixed equity indexed annuity.

Generally, the equity indexed annuity's return is based on the performance of a stock related index (e.g. S & P 500 or 400). This annuity comes with a guaranteed rate of return ( 2 - 4 %) regardless of the index's performance. Yet, there are limitations to consider when purchasing an equity indexed annuity. Most limit the amount of gain you may receive in a given year. Normally, those annuities withhigher guaranteed fixed rates of return come with longer surrender charges. Usually, an equity indexed annuity might cap earning to 10-14% a year. On the other hand, some equity indexed annuities' participation rate determine how much a person will earn. For example, if the S & P 500 return is 10% (your maximum eligible return is 10%) and your participate rate is 70%, your annuity will be credited 7% (This is assuming that there are no administrative fees).

The equity indexed annuity is a unique financial product. Generally, it offers a guaranteed rate of return regardless of the economic climate and its return is based on an index such as the S&P 500. The equity indexed annuity might place a limit on how much you can gain in a year, and the participation rate may vary from company to company.

*Disclaimer: This article does not constitute financial advice. Always consult a tax advisor or financial advisor when making investment decisions.