Understanding Fixed Index Annuity Pros and Cons
Calculating fixed index annuity can be very complicated but in essence, they are quite easy to understand. There are just many calculations that you need to do and factors to consider. If you are contemplating on getting this type of annuity or any annuity for that matter, it is highly suggested to take advantage of experts and their advice. Any investment and insurance product has numerous features that may be advantageous and risky to consumers. Let us find out the fixed index annuity pros and cons, and how these factors can affect your life as a retired civilian or if you are someone who wishes to invest.
In analyzing the fixed index annuity pros and cons, let us look at the advantages. One of the fixed index annuity pros and cons would be the guaranteed growth. Your principal will remain secure and there is also a guaranteed growth even if it is a low rate. When you receive the contract, the minimum amount that you can expect to receive will be highlighted. Another aspect of the fixed index annuity pros and cons would be the tax deferral which is really good. Similar to all annuities, your money will grow tax deferred. Also, you can enjoy some step ups on your account. The value of your contract can be locked in good performing index and this offers a benefit to lock the guarantee if the market is working the way you like it to work.
Another aspect of the fixed index annuity pros and cons is the rate of capitalization which is a negative side of the plan. All the contracts will state a minimum interest that will be applied to your account. This can be calculated in numerous ways such as annually or monthly. If the cap rate is 9% the market index can turn 20% but sadly, the account will be limited to the 9% which is your maximum cap. Another aspect of the fixed index annuity pros and cons is the participation rate. All accounts require a percentage of an index gain which will be credited to your account. The range is around 60 to 100 per cent
Another fixed index annuity pros and cons would be the long surrender periods. It could be positive or negative depending on how you handle your investments. If the money you will invest is something you can dispose of, then you will benefit from this money in the future by locking it up. Of course for most people who have very limited savings, they want to make sure that their money has liquidity. If you want to keep the fixed index annuity pros and cons balanced, then go for a shorter period like 5 years and if you still like what you are getting, then roll it over another 5 years. This way, you have more control of your investments.
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