Fixed-Indexed Annuities

What if you could combine part of the stock market's upside potential with absolutely zero downside risk? Would you be interested?

What if you could ...in essence, create your own "personal pension", a guaranteed income for life? Would you be interested?

What if you could legally defer taxes, legally minimize taxes? Would you be interested?

What if 100% of your indexed-linked interest gains, once added to your account value annually, were guaranteed *never to lose value? Would you be interested?

*Assumes product is held till end of surrender charge period.

These questions capture the appeal of the fixed-indexed annuity, a revolutionary product brought forth by the insurance industry to keep your money safe and secure, while still providing upside growth potential. Fixed-indexed annuities are usually linked to a popular stock market index such as; Standard and Poor's 500, Dow Jones Industrial Average, NASDAQ 100, or even a Euro Stock index.

The statements are true. You get a portion of the stock market's upside potential with absolutely zero downside risk. With a fixed-indexed annuity you could create your own personal pension, providing you (and or your family with joint ownership), a guaranteed income for life. You can legally defer and minimize taxes with fixed-indexed annuities. 100% of your indexed-linked interest gains are automatically locked-in.

Unlike market-sensitive investments, your indexed-linked interest gains are locked-in, guaranteed to *never lose value. Fixed-indexed annuities uniquely allow moderate savers and investors the ability to prevent losses in their nest egg, to prevent losses in their retirement portfolios, and capture annual gains, which can *never be lost due to volatility in the stock markets.

*Assumes product is held till end of surrender charge period.

If something seems too good to be true it usually is. You don't get the full upside of typical market sensitive investments with a fixed-indexed annuity. However, if you are willing to accept moderation and are happy receiving a portion of the market-index return, meaning a cap on upside earnings, and you do not want to subject your savings to downturns in the stock market (ever), fixed-indexed annuities may be exactly what you want. Fixed-indexed annuities may be ideal for conservative investors, current CD and annuity owners, retirement savers, and investors desiring potentially higher returns with principal and interest rate guarantees.

Again, Fixed-Indexed annuities are tied to major stock market indexes and not to the performance of individual stocks or mutual funds, providing complete safety of principal and interest rate guarantees. They are a fixed financial product. They are not a securities product. Fixed-indexed annuities are an excellent alternative savings vehicle, a choice for people who are planning to retire, or are already retired. Again, not only is there "zero market-risk" associated with fixed-indexed annuities, but when the market goes up and you have a gain in your account, it is locked-in and yours to keep. It cannot be taken away, and you cannot lose your gain.

Fixed Indexed Annuities provide the consumer with the best of both worlds: "zero market-risk" with the potential for moderate returns. Fixed-Indexed Annuities appear in the middle of our "Spectrum of Risk and Return". They provide a rate of return that may be potentially greater than that of fixed products, but less than some market sensitive products. The market-risk associated with Fixed-Indexed annuities is still zero. Only fixed-indexed annuities can do this.

Fixed-Indexed Annuities Guarantee:

1. You cannot lose your principal.
2. Once you have a gain in your account, it is locked-in and yours to keep.
3. You will not pay taxes on any gain until you make a withdrawal.
4. A lifetime minimum interest rate guarantee.
5. A choice of guaranteed income options you cannot outlive.

We want to expand on point number 5. If a consumer decides he or she needs a monthly income check, he or she can annuitize and receive a monthly income they cannot outlive, or if they prefer, take periodic withdrawals. This amounts to the creation of a personal pension, a guaranteed income that will last as long as you do.

The majority of Fixed-Indexed annuities in the market place utilize the S&P 500 Index. The S&P 500 is recognized worldwide as the premier benchmark for U.S. stock market performance. The S&P 500 does not simply contain the largest stocks. It covers top companies from leading industries. The S&P 500 represents a broad cross-section of the U.S. equity market, including common stocks traded on the New York Stock Exchange, American Stock Exchange and the NASDAQ Stock market.

Fixed-indexed annuities provide upside potential with protection from Market Index Losses.

What if you had $100,000 and...

1. When the S&P 500 Index grows, your account value grows
2. When the S&P 500 Index declines, your account does not lose value
3. When the S&P 500 Index has a negative return, your Index credit can *never be less than zero

*Assumes product is held till end of surrender charge period.

If this sounds appealing to you, you may be interested in fixed-indexed annuities.

Example of "How a Fixed-Indexed Annuity works".

Fixed-Indexed Annuities are an excellent savings choice for people who are planning to retire, or are already retired, or are simply averse to stock market risk. Fixed indexed annuities shield consumers from stock market-risk, and provide for the upside potential of only positive market increases. Not only is there "Zero stock market risk" associated with fixed-indexed annuities, but when the stock market benchmark index goes up, and you have a gain in your fixed-indexed annuity, it is locked-in and yours to keep. It cannot be taken away.

The safety tax-deferred annuities provide consumers, is traditionally cited as the #1 reason consumers place their savings in tax-deferred annuities. Your fixed-indexed annuity is safe because qualified legal reserve life insurance companies are required to meet their contractual obligations to you.  Only insurance companies have the financial strength and the cash reserves to offer the guarantees found in an annuity.  Mandated reserve requirements mean that when a tax-deferred annuity is purchased, the insurance company, by law, must set aside dollar-for dollar reserves to cover all anticipated payouts.

The investment risk is assumed by the insurance company rather than by the owner. Always remember that tax-deferred annuities guarantee your principal and interest if held till maturity. When you purchase stocks or mutual funds, you, not your stock broker or the firm for whom they work, assume the risk of the stock market.  By investing in a tax-deferred annuity, this risk is absorbed by the financial strength and the cash reserve of the insurance company. Plus, there is a state guaranty association to help pay claims, should an insurance company become impaired.

In this example, we will have an informational discussion that should not be interpreted as investment advice or legal advice.  We will discuss the workings of a fixed-indexed annuity (an insurance product) in comparison to a market sensitive investment (a security), such as a mutual fund or a variable annuity.  This example is intended to provide the average reader with  an educational perspective only.  In this comparison there will be no consideration given, relative to common costs associated with a mutual fund or a variable annuity, such as management and expense, mortality costs, or specific rider charges.  Additionally, we will not take into consideration, nor will we discuss dividends, that may or may not be associated with the underlying stock of companies listed in any bench mark index.   Please be informed that dividends are not part of  crediting strategies or methods associated with any fixed-indexed annuity, as the owner of a fixed-indexed annuity does not own any stock, directly or indirectly.   Also, a fixed-indexed annuity is issued by a legal reserve life insurance company, and only the numerical change in a benchmark index is are part of any crediting strategy, or crediting method.  This is a hypothetical, educational comparison.

Let's go through an example that will illustrate how fixed-indexed annuities work. Assume we are utilizing an annual reset, fixed-indexed annuity, with interest credits linked to the performance of the well known S&P 500 benchmark index, with a 100% participation rate, and a 10% cap. Pretend you put $100,000 into a fixed-indexed annuity, and you were fortunate enough to have a 10% gain in year #1 (your account value is now $110,000), and another 10% gain in year #2 (your account value would now be $121,000), with the S&P 500 now having grown to an index value of 1500 by the end of year #2. Now, fast forward to the end of year #3, and pretend the S&P 500 index value has fallen to an index value of 1000. In this scenario, you did not make any money, but more importantly, you did not lose any money either.  The interest credits applied to a fixed-indexed annuity work like a ratchet wrench. We say this because interest credits to a policy can only move in one direction, “up” or “in a positive direction”, and then your gains are locked-in and yours to keep.

Consider the following: If you had decided to leave your money in a mutual fund or a variable annuity directly related to the S&P 500 benchmark index, you would have experienced a real loss in year #3 of 33% in your account value. If, in fact, you had $121,000 in a mutual fund or a variable annuity at the end of year #2, you would have only $80,600 less fees and expenses at the end of year #3.

If you lost 33% in a hypothetical mutual fund in a particular year, you would need a 50% increase the following year to get back up to where you were the year before. If your money had been safely placed in a fixed-indexed annuity (as in our example), you would still have $121,000 in your account at the end of year #3, because once you have a gain it is locked-in and yours to keep.

Here is where it really gets interesting. In our example, on day #1 of year #4, the S&P 500 is at an index value of 1000, and your account value is still worth $121,000. You now have the opportunity to participate in upward or positive movements  in the S&P 500 benchmark index, perhaps,  all the way back up to an index value of 1500 and profit every step of the way, locking in your gains annually.

If the S&P 500 benchmark index were to climb to just 1100 by the end of year #4, per our example, that's another 10% gain on top of the $121,000 you had already locked in, giving you a new account balance of $133,100 at the end of year# 4.

If the S&P 500 benchmark index were to continue it's recovery and climb to just 1210 by the end of year #5, that's yet another 10% gain on top of the $133,100 you had already locked in, giving you a new account balance of $146,300 at the end of year# 5.

Look at where you started on the S&P 500, "1215".  In our example, you are not even back to where you started, and your account value has grown to $146,300. This is a great product for retirement assets. The stock market goes up and down, but you only participate when the  benchmark index  goes up!

Annuities have Surrender Charges

The surrender charge is the penalty you pay to surrender (cancel) or withdraw all or part of your contract during the contract years. Let's talk about a hypothetical annuity contract with a surrender charge starting at 10% of the contract's accumulation value, which decreases by 1.00% on each anniversary. The surrender charge on the last day of contract year 10 will be 1.00%. On the first day of contract year 11 it will decrease to zero.

This chart details the surrender charges during the first 10 contract years for any withdrawals that are subject to a penalty. If you take a full or partial withdrawal that is subject to a penalty during this time, (usually the contract will include a 10% free withdrawal), the insurance company will apply the surrender charge shown to your withdrawal.

How do I avoid surrender charges?
After 10 contract years you will avoid surrender charges, and you can take your full accumulation value as a lump sum. During the surrender charge period, you can also take penalty-free withdrawals (usually the contract will include a 10% free withdrawal) from your contract, and no surrender charges will apply. Regardless of whether a withdrawal is penalty-free or subject to a surrender charge, any time you take a withdrawal from your annuity it may be subject to taxes.

Can I take money out of my annuity without incurring contract penalties?
Yes. There are a variety of ways you can get some of your money out of your annuity without incurring surrender charges to the accumulation value.  These options include: penalty-free partial withdrawals, contract loans, or annuitization. Annuitization is the process of liquidating your annuity over a said period of time, whereby a portion of the monthly, quarterly, or annual payment represents a portion of both principal and interest. You can receive payments over 5, 10, 15, 20 years, or longer. You can also annuitize over your lifetime or combine your life time with that of your spouse. This is extremely popular, and will insure that you or your spouse will never run out of money, as long as either of you live.

A Liquidity Feature offered with many fixed and fixed-indexed annuities is a "Long-Term Care Waiver". Most fixed and fixed-indexed annuities offer a free annual withdrawal of up to 10% of your account value, which is a featured advantage of most annuities. Although the 10% free annual withdrawal provides excellent liquidity, the owner of the annuity contract has the additional ability to remove all of his or her annuity savings without any penalty, when confined to a nursing home for a  stipulated number of consecutive days (customarily or often 90 days), if the annuity contract comes with a "Long-Term Care Waiver". Generally, the contract must be in force for one year before confinement begins.

Many advisors point to annuities for the additional access to savings made available by way of the "Long-Term Care Waiver", offered by many of the annuities found in the marketplace today. Consumers should know that there is no additional charge for this feature. If a consumer is confined to a nursing home or other long-term care facility for at least 90 consecutive days, and the annuity contract comes with a "Long-Term Care Waiver" as described above, the insurance company will waive all early withdrawal charges, even up to a full surrender.

Another Liquidity Feature offered with many fixed and fixed-indexed annuities is a "Terminal Illness Rider". Often,  after the first contract year, if you are diagnosed by a physician as having a terminal illness (prognosis of survival is 12 months or less), you may have the option with the terminal illness rider to withdrawal up to 25% or more of the annuity's account value, without incurring an early withdrawal charge. There is usually no additional charge for this rider, "Annuities have surrender charges" but surrender charges are actually a good thing for at least three reasons.

1. They allow 100% of a consumer's deposit to go to work earning interest immediately. A product with a front-end sales charge (which fixed, fixed-indexed, and income annuities do not utilize) reduces the amount of the deposit up front to cover the sales commission, and therefore, less money is working for the consumer from day one.
2. They encourage the consumer's money to stay with the company longer, which allows a carrier to invest longer (at higher rates) and provide higher returns.
3. They discourage the consumer from tapping an account early for non-critical needs, so the money is actually there when they need it the most.

We urge consumers to remember that fixed-indexed annuities are savings instruments.

Fixed-indexed annuities were designed to be competitive with other savings vehicles that also protect principal and credited interest. Again, fixed indexed annuities shield consumers from market-risk, and provide for the upside potential of only positive market increases. There will be times when index annuities outperform mutual funds and variable annuities, but remember that is not what they were designed to do. Stocks and mutual funds provide consumers the opportunity for upside potential beyond savings products, but they also provide consumers with the opportunity to suffer market losses, and the costs associated with these investments may prohibit growth.

The bottom line is retirees simply may not have the time to stomach the ups and downs of the stock market. With fixed-indexed annuities, they don't have to, because retirement minded individuals who choose fixed-indexed annuities, *never run the risk of losing their money. Retirement savings placed in fixed-indexed annuities remain protected.

*Assumes product is held till end of surrender charge period.

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.

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