Indexed Annuity Returns
Equity Indexed Performance Examples
The charts and examples posted below illustrate certain equity indexed annuity account (EIA) and fixed indexed life insurance policy performance over the last several years. It is important to understand that these graphs are illustrations of past gains and not predictive of future performance. Investment returns can differ depending on when the policy was funded and to which index the premium was allocated.
Monthly Averaging Strategy
The first graph illustrates a monthly averaging strategy, with a 1.5% asset fee, 100% participation rate and no earnings cap. In this example, the insurance company takes the value of the S&P 500® on the same date every month, adds those twelve figures together and divides that total by twelve to determine an average number. If the average number is higher than beginning value of the S&P 500® on the annuity’s anniversary date, interest is credited to reflect this gain. An asset fee of 1.5% will also be charged to the account; however, such a fee is only withdrawn if the annuity gains value. That is to say, the asset fee will not be assessed in a manner that will ever cause the annuity to lose value in any year.
“Point-To-Point” Strategy
The second graph illustrates a “point-to-point” strategy for crediting interest. This particular account has a predetermined cap or ceiling. Interest is credited based on the difference between a starting and ending value of the S&P 500® during a one year period, which begins when the annuity is funded. This strategy will “cap out” when its ceiling has been reached. In certain market conditions the point-to-point can outperform other strategies, especially during volatile market cycles.
The provided graphs only represent two possible methods of crediting interest in an equity-indexed account. Other equity-indexed accounts calculate interest based on a high water mark, a monthly cap, or a two or three year point-to-point strategy. In fact, many EIAs will have three or more interest crediting strategies to choose from on the annuity’s anniversary. Accordingly, these results are not indicative of how all equity-indexed annuities performed during the same time period. Additionally, the examples also assume that no funds were allocated to the annuity’s fixed interest sub account at any time. Many annuity owners choose to allocate a portion of their premium to such sub accounts to guarantee interest returns, especially when the overall market is not performing well, such as the decline witnessed in 2000-2002.
In summary, equity indexed annuities can be especially valuable for those looking to protect and preserve their assets without having to sacrifice reasonable compounding interest payments. The given examples highlight this strategy by demonstrating the high yielding potential of these investments during prosperous years and the security they provide during significant market downturns.
