Never Lose a Dime!
Have you heard of an equity-indexed annuity? It could be just what you need to set your savings in order. For those who are looking to gain more than they would from a fixed rate annuity but don’t like the risk of a variable annuity or the stock market they may appreciate all that an equity-indexed annuity has to offer. An index annuity is the only product on the market that can offer you all the upside of the an Index like the S&P with no risk of the down side.
So what is an Equity Index Annuity?
So, like you should with all major decisions in life, you’ve got to weigh the equity-indexed annuity pros/cons. First off, what is an equity-indexed annuity? With this type of annuity, the annuitant will be able to get the exposure they need from a stock index while also being guaranteed the return of that which they originally invested. Basically, you get to take advantage of possible gains in the stock market while minimizing risk. You can ride a bull market and see double digit returns but you will never participate in a bear market.
Pros
Tax Deferred Growth
Equity-indexed annuities operate just as most other annuities when it comes to taxes; namely, the annuitant doesn’t pay tax on their investment gains until they start to receive payments. For many, this is one of the biggest equity-indexed annuity pros.
Chance at Double Digit Yearly Gains
With an equity index annuity you will follow a major index, like the S&P 500, typically on a day to day or year to year crediting method. So if the S&P was to have a strong steady gain over the year you can participate in the run up in the market.
You Can Never Lose Any Principal
When you track the index in your annuity, let say the S&P for example, on a year to year crediting method. If the S&P started at 1500 and one year later is at 1400 you have a floor of zero so you would never participate to the down side like you would in mutual funds, a stock index, or just a plain common stock. All of the upside potential with none of the downside risk.
Cons That Could Also be Considered Pros!
Next in the list of equity-indexed annuity pros/cons is the interest rate; unlike some other annuities, these annuitants do not receive a fixed interest rate unless that is the crediting method you choose inside your annuity. With that being said, if you’re able to score a portion of the interest gained from a particular stock index without risking the principal, that could be viewed as a pro by some investors.
Cons
There Is a Cap to The Upside
If the market returns 20% in one year your up side gain could be capped at a certain set amount. Lets say the cap is 12%, and the S&P made 20% in one year, you will only be credited the amount to the set cap limit of the agreement when you sign the annuity contract. So in this case you would have a 12% return in this year. Not to bad specifically if you have no possible change of losing a single dmie of principal if the market collapsed.
Surrender Charges
Like all annuity their are surrender charges if you need to pull your money out before the end of the contract. So if you sign up for a 5 year annuity you can not pull all the money out until the 5 years is up without a penalty. However if you need some money you can typically pull out 10% per year with out any penalty. So if you had deposited $100,000 into a 5 year annuity and one year later you could withdraw $10,000 with no penalty.
Adivsor Moving Your Money Incorrectly Into This Type of Account.
One thing to watch out for is that sometimes shady financial advisors will persuade people to liquidate their assets and invest them in an equity-indexed annuity. This isn’t to say that this is one of the cons of such an annuity, but just that the best course of action is to protect yourself and to purchase an annuity from a reputable insurance company or other licensed dealer. Learn more by contacting a licensed agent at TermLife-Insurance.com.
Equity Index Annuity Overview. Many More Pros than Cons.
In overview, an Equity Index Annuity is the perfect investment vehicle for people who want a possibility at a higher return than a fixed annuity could give them, but don’t want the fear of losing money in a bearish market. Were not only good at term life but we rock at annuities as well. Some advisors say you can expect around a 6% to 7% return on your money over the life time of the annuity using the index annuity.
