What is an equity-indexed annuity?

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May 2017
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Be careful about taking advice about any complicated investment vehicle where the advice is strongly biased (positive or negative). One of the answers on this question seems to be extremely biased saying that this is an instrument made by insurance companies for their own profit (which is true). However, most companies that offers an investment vehicle are doing so for profit (since they are not charitable organizations). Mutual funds, hedge funds, banks, and insurance carriers all offer products to make a profit. But they must offer a product valuable to investors to stay competitive and attract funds. 

Investopedia's answer is the most appropriate stating that these are investment contracts that offer attractive risk adjusted returns for moderately conservative investors. The average returns on equity indexed annuities (or fixed indexed annuities) tend to be higher than fixed annuities or bank products due to the linking to index returns. But they offer principal protection from market downturns. 

Conversely, the average returns tend to be lower than at risk investments such as stocks or real estate due to limitations set by the insurance company (usually represented by a contract fee or a cap, spread, or participation rate on the index allocation selected).

There are a number of factors one should evaluate before investing in an equity indexed annuity (including but not limited to: rates, indexes, crediting strategies, surrender charges, surrender fees, riders, etc.).

 

The information, data, analyses and opinions contained herein do not constitute legal advice offered by Kinetic and are provided solely for informational and educational purposes. While the information and statistical data contained herein are based on sources believed to be reliable, Kinetic does not represent that it is accurate and should not be relied on as such or be the basis for a decision. Kinetic Financial & Insurance Solutions, Inc. and Kinetic Investment Management, Inc. are two separate entities. Insurance products and services are offered and sold through individually licensed and appointed agents in all appropriate jurisdictions under Kinetic Financial & Insurance Solutions, Inc. Investment Advisory Services are offered through Kinetic Investment Management, Inc. a registered investment adviser. 

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