4 Things You Need to Know about Fixed Indexed Annuities

Whether or not you believe in annuities, we have been helping people with them for over a decade and have a lot of extremely satisfied customers because the annuities were purchased with a level of understanding how the products work. Fixed annuities and fixed indexed annuities are wonderful for the right people. Generally, people who are conservative by nature, afraid of losing money, have the right time horizon, are great candidates to explore the benefits of annuities. But there are important factors to keep in mind:

1) Allocation options and “CAPS” can change – it is likely after the annuity policy is in force, after the first year, the cap, participation rate, and allocation options can change. It is prudent when speaking with the person you are purchasing the annuity from to set the correct expectations around reviewing the allocation options as time goes on.

2) Fixed index annuities generally pay a one-time up-front commission which means support and advice down the road is going to be at the mercy of the agent you purchased it from – it is similar to asking a realtor for advice you purchased from 3 years ago. Chances are if you work with someone you trust, they will be more than happy to help out and give advice. But there are several insurance agents out who are more focused on selling new products and it is ultimately not “profitable” to service and meet with people who purchased annuities in the past, this is not really a right or wrong thing, it is what it is. The good news is that the insurance companies usually have policyholder service departments who will be able to assist, don’t let it keep you from deciding if a fixed index annuity is right for your situation.

3) Fixed indexed annuities lock in the gains at the end of each “crediting period”- if it is an “annual point to point (most common), the potential gains will be locked in after one year and the value becomes the new base account value, if there are no gains credited because the allocation option was negative for the year, the account value will be flat (unless other rider or miscellaneous fees are being taken out). This is all possible because the insurance companies are purchasing “options”, so there will either be gains or no gains at all.

4) Liquidity is a problem for some people – fixed indexed annuities almost always have surrender charges which means it will be difficult to move the money in the account without incurring a penalty. Matching the time horizon accordingly to the distributions needed is extremely important and most insurance companies’ suitability guidelines catch these issues when the application for the annuity is properly completed.

If you would like to set up a meeting in person or online, someone from our office will be able to listen to your concerns and goals and provide education around annuities and hopefully be able to answer your questions. Give us a call or reach out, we would love to help. 425-246-4222.