Fixed index annuities provide the guarantees of fixed annuities, combined with the opportunity to earn interest based on changes in an external market index. But because you're not actually participating in the market, the money in your annuity (your "principal") is not at risk.
A fixed index annuity may be a good choice if you want the opportunity for accumulation, but don't want to risk losing money in the market.
Fixed index annuities can offer:
- Principal protection from market downturns
- Tax-deferred growth potential
- One or more index allocation options
- A choice of crediting methods
- Income options, including income for life
- Death benefit options
How do fixed index annuities work?
- You give the insurance company money in one or more payments.
- The insurance company then invests it on behalf of all annuity owners to support the benefits of the contract
- During the accumulation phase, your annuity will earn a fixed rate of interest that is guaranteed by the insurance company or an interest rate based on the growth of an external index.
- You defer paying taxes on your contract’s interest until you receive money from the contract. Tax-deferred interest means the money in your contract can grow faster.
- After a period of time specified by your contract, you may then receive the amount allowed by your contract in a lump sum, over a set period of time, or as income for the rest of your life. This is known as the distribution phase.