Equity Indexed Annuity – Understanding the Various Aspects
There is something sexy about the features of an equity indexed annuity. These products are sold by numerous insurance companies and they are a mixed insurance and investment plan in which insurers promise the investors a share of stock market gains with an assurance of limited downsides if the market suddenly moves the other way. When the investment reaches the accumulation period, the owner will be offered with either a lump sum amount on the proceeds or it could also be regular payments that are based on ending balance.
In the last few years we have seen the equity indexed annuity become very popular among consumers with numerous insurance companies offering unique and enticing things to get you investing. While it is true that the features of the equity index annuity looks very appealing, sadly, the stock market is always moving up and down and is not the most stable of all environments for a promise of guaranteed gains. Nonetheless, the equity indexed annuity still was able to outperform other investment products by mid 1990s.
Before you try your luck on equity indexed annuity, you have to take a long and hard look about its features before adding the equity index annuity into your portfolio. While the rules are different, the concept is still the same. Insurance companies who sell annuities utilize so-called derivatives to corral the annuities that limit the upside and downside aspects for investors. However, it is important to ask a very important question regarding the equity index annuity. Are the offsetting hedges are at a fair price? Sadly, for some who have tried the equity index annuity, it is not the case. The equity indexed annuity may seem easy to understand but there are numerous complications that you have to analyze so that you can make the right decision if the equity index annuity is ideal for your needs.
When it comes to the equity indexed annuity, the most complicated aspect would have to be the methodology used to calculate the gain within the index where the annuity is connected. Most equity indexed annuity plans have participation rates that reduce the gains that the holders share.
Another aspect to consider with regards to the equity index annuity is that if you get stuck with the plan. There are very high penalties that you have to pay for if you decided to get out of your equity indexed annuity. What if you suddenly realized that you needed the money earlier on? Most companies have surrender fees and these are still in effect even after several years.
Investments and the stock market are affected greatly by various factors but one thing is for sure: no one can provide a 100% guarantee on the equity index annuity since even if the past performance of an investment product were good before, that does not mean that the future will be fine and dandy forever. Let us help you decide if the equity indexed annuity is ideal for you. Select your state and receive estimates from top insurance companies around the area.