Index Annuity

Index Annuity are a great option for income for retired individuals. This is a new type of annuity that is quickly gaining popularity among the fixed and variable annuities. This type of annuity provides stability and a safety net just like fixed annuities, but it also offers a level of flexibility like the variable annuities. These annuities are based on a specific index such as the S&P 500. The policy is such that the owner gets a low base rate of return if the market values do not go up or if they stay flat. This means that all annuity owners are given a guaranteed return every month.

When the market does well the owners get a percentage of the profits and the return rate is much higher. However all Indexed Annuities have a cap on the rate of return. This allows the insurance companies to recuperate from their losses when the market went down and they had to pay the investors the guaranteed return. Therefore the cap is the price that investors have to pay for the guaranteed monthly return. Such types of annuities are perfect for retired individuals, especially those who are still quite young. They offer flexibility in investment options that is simply not available in Fixed Annuities.

Before investing in Indexed Annuities one needs to properly assess the situation. In some cases people buy Index Annuity simply to get a tax deferred growth on their current funds. They have enough funds to ensure many comfortable years of retirement and their focus is to pass the funds onto their heirs after their death. This is also an advantage offered by these annuities. The reason why these annuities are not suitable for younger investors is because those under the age of fifty nine have to pay 10% on the growth of the annuity if they withdraw the money. Nevertheless, Indexed Annuities are a great option for retirees who want many years of guaranteed income to live comfortably. They are the new types of annuities to help people who are worried about outliving their assets. The best way to compare different annuity rates and policies is to go online. Many websites allow visitors to compare policies of different companies so that they can choose the one that is best for them. When selecting an annuity always look at the participation rate and the caps which indicate the profits you can make from the investment.

Equity Index Annuity:

The equity index annuity is a type of annuity wherein an investor will get a return, the magnitude of which is based on the performance of the market. This market is actually a stock index such as S&P 500 or the Standard & Poor’s Index of 500 stocks. However, the risk factor depends upon the participation here. The annuity holder actually gets a certain amount of interest in his account. Over and above this fixed interest, he will also get an additional amount of interest depending upon the participation rate. There is something called an interest cap in this kind of an annuity, where there is a restriction on the additional interest that an annuity holder gets. The annuity holder will not get any further interest over and above this cap, despite the increase in the market rates.

When a conservative investor, one who wants higher rates of interests but doesn’t want to risk his principal amount, invests his money on an equity index annuity, he will surely benefit in two ways. Firstly, he gets a higher average rate of return when compared to a bond, a CD or a fixed income asset. In this kind of annuity, the investor will get to keep a majority of the annual market gains whenever there is a rise in the market index and he doesn’t suffer the loss that occurs from a decline in the same market index. Thus, the average rate of return can be defined as something in between the stocks and the bonds.

Another benefit that a conservative investor gets from investing in an equity index annuity happens to be risk-reduction. Usually investments that involve high risks offer higher rates of return and those that involve lower risks offer lower rates of return. In case of this kind of an annuity, the upper as well as the lower boundaries of these returns get cut off and thus the risk is also reduced. In any case you will not lose out on your principal. If the same investor invests in stocks, he may lose out on his principal and even suffer a major loss, whenever there is a decline in the market index of that particular stock.

An investor who invests in an equity index annuity also gets to enjoy freedom from the active management of an asset. Liquidity provision, waiving of surrender charges in certain critical conditions and tax-deferred annuity gains are the other benefits offered by such an annuity and these should definitely not be overlooked.