Indexed Annuities

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Characteristics of Indexed Annuities

December 5, 2013

Suni

There are multiple kinds of annuity products that a conservative investor can opt for. Each one offers varying terms on such issues are rates of return, period of payout, minimum rate of return and when the payouts will begin. The varying terms mean that there are many considerations one should think about before signing the contract. Indexed annuities are particularly appealing to investors because they often offer a rate of return that is higher than other annuity products except variable annuities. The reason for this is that they are typically pegged against the rates of equity indexes. Equity indexed annuities are very appealing as they offer a return that trends with market performance with a minimum rate of return guaranteed. The security of the minimum rate of return make this product very appealing as even when a market downturn occurs, the investor is still guaranteed a profit on their investment.

The growth in investment is also further benefitted by the tax deferral. Taxes are only paid when the money is being paid out or the annuity settled. If you decide to defer your payments then the worth of your investment can accrue to even higher levels. On the downside however, if you decide to make a withdrawal on your annuity before the agreed upon date, then you can be fined hefty surrender charges. Many insurers have earned sizable commissions by imposing such fines. Because this is a part of the financial market without much regulation you are pretty much at the mercy of insurers. For this reason many are advised when taking up such annuities to also have other investments in more liquid markets they can tap into in case of emergencies arising. It is vital that when taking up these instruments you critically examine the contract you are entering into. It is advisable to seek the counsel of a financial professional like an accountant, independent broker or personal financial advisor to break down the more complex terms into layman’s language.