What are the Benefits of Fixed Index Annuities?
A fixed index annuity has many great benefits it can provide to retirees. The money you worked hard for remains safe. That means even if you choose an index that drops in value, you won’t have any losses. The law actually requires insurance companies to keep your money safe. This means you have the opportunity of gains if your index does well, all with protection from the insurance company and without the risk of losing your hard-earned money. With a set reasonable rate of return,* you won’t need to worry about losing your nest egg if the market is down. For many retirees, this gives them the peace of mind that they won’t outlive their retirement savings.
Some fixed index annuities (FIAs) set a ceiling on the amount a contract can earn, otherwise know as a CAP, during a certain time period. This is usually a month or year. If your chosen index increase goes over the cap, the cap is then used to calculate your interest instead of the index rate.
Some fixed index annuities (FIAs) implement participation rates after caps. This means a participation rate will be used to measure your indexed interest rate. These are generally applied after caps but before a spread.
Certain fixed index annuities (FIAs) use a spread to determine indexed interest. They deduct a percentage from the accumulations of the index reaches within a set term. For example, if an annuity spread is 4% and the index increase by 10% – the annuity contract would get a credit of 6% indexed interest.
*Reasonable rate of return over time.