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Annuities are long term vehicles that offer tax deferral, a variety of income options, and a death benefit.
Fixed Indexed Annuity (FIAs) are unique products that offer some of the guarantees of fixed annuities combined with the opportunity to earn interest based on changes in an external market index – without directly participating in the market.
Your money will not be affected by market index losses, and will only benefit from increases in a market index.
FIAs can be an important financial tool that provides earning potential while keeping principal safe from market fluctuation. These products offer a range of features that may include:
They continue to develop new and innovative fixed-index annuities that provide the guarantees of a fixed annuity with the potential for indexed interest.
Please understand that bonus annuities may carry higher fees and charges than annuities without the bonus feature.
Guarantees are backed by the financial strength and claims paying ability of the Insurance Company.
To learn more about our Fixed Indexed Annuities, please consult with your financial professional to see if a FIA is right for you.
Another advantage of a fixed index annuity is the opportunity to accumulate interest based on changes in an external index. Some FIAs offer you a choice of indexes rather than just one. In addition to choosing your indexes, you can also determine what portion of your annuity's value will be based on each index selected.
Although an external market index or indexes may affect your contract values, the contract does not directly participate in any stock or equity investments. You are not buying shares of any stock or index fund.
When you purchase a fixed index annuity,you can allocate its value to one or more selected indexes. We then use a crediting method (which we will define later) to track the performance of your index(es). At the end of each contract year, we alculate the indexed interest.
Because of their potential indexed interest, FIAs give you a unique opportunity for accumulation.
If the result is positive, you will automatically receive indexed interest, subject to a cap or spread (which we will also define later). That interest is locked in each year and cannot be lost due to index declines at some point in the future.
If the result is negative, nothing happens – and that can be good news! Although you won't receive any indexed interest for the year, your annuity's value doesn't decline.
There are two reasons why. First, you are not actually participating in the market or investing in any stock or bond. Second, most FIAs have a feature called annual reset, which we will discuss later.
No single crediting method consistently delivers the most interest under all market conditions. For a better understanding of how each crediting method works, talk to your financial professional. Keep in mind that caps, participation rates, and spreads will also enter into the calculation of indexed interest, and may reduce the amount of interest credited. Annual point-to-point. This method tracks changes in the market index from one contract anniversary to the next and credits interest based on that annual change. Monthly sum. With this method, individual monthly increases and decreases in the index values are tracked and added up. Their sum helps determine the indexed interest credited to the annuity. Monthly average. For this method, the individual monthly index values are totaled, and then divided by 12 to find the average. The starting index value is subtracted from the average to determine the amount of positive or negative index change. This amount is divided by the starting value to determine the percentage of interest credited to the annuity.
Annual reset is a common FIA feature. At the end of each contract year, your annuity's index values are automatically reset. This means this year's ending value becomes next year's starting value. Annual reset also locks in any interest your contract earned during the year. So a negative index return one year will not affect the following year's potential for indexed interest.
A third important advantage of a fixed index annuity is the range of guarantees and optional protection benefits available. These benefits allow you to transfer risk to the insurance company issuing the fixed index annuity. These guarantees help protect your assets, your retirement income, and your beneficiaries. In exchange for the risk transfer, the benefits may carry an additional cost that will vary by product and company.
Annuities are subject to surrender charge periods which can vary, but are generally between five and 10 years in duration. As long as you abide by the terms of your contract, you will not lose any of the money you place in your annuity due to surrender charges. And any interest credited to the contact is locked in and protected as well.
A fixed index annuity puts you in control of your future income, based on the annuity you choose and how much money you put into it. After your contract has had an opportunity to earn interest over its deferral period, you can begin distribution. You can then receive your contract's values in a stream of income that will last your lifetime (or longer). The amount of your payments is based on the value of the contract on the date you begin distribution and the payout schedule you choose. You generally have two choices for receiving income payments: annuitization payments or income withdrawals – each of these payment types is taxed differently. For annuities that are not held in a qualified plan such as an IRA or a 401(k), part of each annuitization payment is a tax-free return of what you paid for the annuity and part is taxable as interest you earned on the annuity. On the other hand, income withdrawals under the same annuity are fully taxable until the interest you earned has been taxed, then you withdraw what you paid for the annuity tax-free. It's always a good idea to consult with your tax advisor before choosing between annuitization payments and income withdrawals if you have any questions or concerns about which income payment type may be best in your own particular tax situation.
As we noted, an FIA allows you to convert your annuity's value into a series of fixed-amount payments. Depending on the product you choose, many FIAs go beyond this. They offer benefits or optional income riders with payments that can increase to help you keep pace with rising costs throughout your retirement. Your income payments will be scheduled as withdrawals you can begin anytime after you reach a certain age (often age 60). And with some FIAs, your income payments will be larger if you postpone taking them for a few years. These income riders or benefits provide a valuable benefit, but they usually come at a cost. Talk to your financial professional about the income options offered by the FIA you are considering, and be sure you understand any costs and restrictions. Please note that withdrawals may be subject to regular income tax and, if taken prior to age 59½, a 10% federal tax penalty may apply.
Your payments may increase based on positive changes in your selected indexes.
If you pass away before you begin to receive scheduled annuity payouts of the contract's value, your beneficiary will receive a death benefit. And in some cases, even if you pass away after you've begun to receive income from the annuity, it's still possible your beneficiary will receive a death benefit. Your beneficiary may choose to receive your contract's values in a single payment or in a series of payments over time. The death benefit may be a reason some individuals purchase annuities even though they have no immediate plans to receive their contract values. They simply want to know the money is available (may be subject to a surrender charge) should they need it – and that it can be passed on to their beneficiaries if they don't use it.
Because the guarantees in an annuity are important, it's important to consider who backs those guarantees. The guarantees are backed solely by the insurance company that issues the annuity. That's why you should know about the financial strength and stability of the company. Ask about their: Ratings – independent agencies' opinions of a company's strength and ability to meet its ongoing insurance policy and contract obligations.
Risk management capabilities – a company's track record of successfully hedging against potentially extreme market events.
Management philosophy – a company's commitment to stability and reliable, long-term performance.
A fixed index annuity is a contract between you and an insurance company that may help you reach your long-term financial goals. In exchange for your premium payment, the insurance company provides you income, either starting immediately or at some time in the future.
Most fixed index annuities have two phases. First, there's an accumulation phase, during which you let your money earn interest. This is followed by a distribution or payout phase, during which you receive money from your annuity. A fixed index annuity also guarantees you will receive at least the minimum guaranteed interest credited to the contract. Remember that all of these guarantees are backed by the claims-paying ability of the issuing company. With a fixed index annuity, 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!
Today's fixed index annuities offer a range of features and benefits that may help you accumulate assets for retirement, preserve what you've accumulated, turn those assets into a guaranteed stream of income, and help you pass on a financial legacy to your loved ones. You will be guaranteed the return of the money you originally paid into your annuity, unless you surrender your annuity during the surrender charge period.
The accumulation phase begins as soon as you purchase your annuity. Your annuity can 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.
The distribution phase of a fixed index annuity begins when you choose to receive income payments. You can always take income payments in the form of scheduled annuitization payments over a period of time, including your lifetime. And many fixed index annuities allow you to take income withdrawals as an alternative to annuitization=payments. Either way, you can choose from several different payout options based on your personal needs, including options for lifetime income, guaranteed.
Tax-deferred growth, which can compound over time, may increase the amount of savings and income your fixed index annuity generates for your retirement.
When you purchase your fixed index annuity, you often can choose the index(es) to which you allocate your annuity's value. You can also often choose the crediting method used to track changes in your selected index(es). Before we discuss those crediting method choices, let's look at some other factors that will affect how your indexed interest is calculated.
Some fixed index annuities set a maximum rate of interest (or cap) that the contract can earn in a specified period (usually a month or year). If the selected index increase exceeds the cap, the cap is used to calculate your interest.
This determines how much of the index's increase will be used to compute the indexed interest rate. If an annuity has a 100% participation rate, the contract would receive 100% of the indexed interest achieved in a given contract period, assuming, in this example, no cap or spread applies. Participation rates are generally applied after caps, and before a spread.
The indexed interest for some annuities is determined by subtracting a percentage from any gain the index achieves in a specified period. For example, if the annuity has a 4% spread and the index increases 10%, the contract is credited 6% indexed interest.
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