Hyers & Associates

Get a Quote »An indexed annuity has attributes of both a fixed and a variable annuity account.  Much like a variable annuity, interest gains will vary depending on the performance of the chosen index, but like a fixed annuity the principal and credited interest cannot be lost due to market fluctuations.

Indexed annuities are insured like their fixed counterparts - they cannot lose value and have no direct market exposure.  Thus, they are significantly different from variable investments which is advantageous for conservative minded investors who desire safety and the potential for higher returns.

Principal Safety and Increased Interest Potential

The stock market has been very unpredictable and extremely volatile over the last decade. Investors have lost untold billions and desire safe and guaranteed investment options. Fixed indexed accounts avoid losses during market corrections while crediting interest during market upswings.

Equity indexed (also referred to as fixed indexed) annuities are unique in the manner in which they credit interest. Traditional fixed annuities credit interest daily based on the internal returns of the insurance company’s portfolio - much like a certificate of deposit.

Indexed accounts do not credit portfolio interest daily. The insurance company uses the same interest returns normally credited in a traditional fixed account to purchase option contracts. The option contracts are tied to the S&P 500, Dow Jones, NASDAQ or one of several other market indexes.

View an Equity Indexed Performance Chart

How Do Fixed Indexed Annuities Work?

If the chosen index (S&P 500 for example) increases over a predetermined period of time (usually one year) then the value of the option contract will increase as well.  Assuming the S&P 500 index has increased in value, the insurance company would credit interest to the annuity at the end of the year.  The credited interest now becomes principal and the process would begin anew for another twelve month cycle.

In contrast, if the option lost value over the one year period, then no interest would be credited to the annuity account – the option has expired without value. To simplify this point - only the potential interest for the current year is at risk, but the principal and interest gains from prior years are not. The account either increases or maintains value, but any interest gains are locked in and cannot be lost in subsequent years.

Minimum Guaranteed Value

It is also important to note that all indexed annuities offer minimum guarantees to the account owner as well.  Should the index credit no interest for the entire term of the annuity due to extremely weak market conditions, then the principal is guaranteed to be multiplied by predetermined percent.  It is very rare for the guaranteed minimum value to be worth more than the accumulated value however. In almost all cases, the index performance will surpass the declared minimum guarantee.

Indexed Annuity Advantage - Investment Options

Indexed accounts were designed to credit higher returns than traditional fixed annuity accounts. In many years, indexed accounts have performed very well. It is not uncommon for accounts to be credited with 7%-10% yearly interest when market conditions are favorable. And there are rare years where interest credits have exceeded 20%. Of course, there are bear market years when there is little to no gain credited to the annuity.

Almost all equity indexed annuity contracts also have a sub, fixed account as an investment option. The traditional fixed account can be used in years where the owner is confident that stock indexes will be flat. Rather than wait out negative market cycles offering no returns, the owner can achieve modest gains in the sub account. An annuity investor will usually have the ability to switch funds between one fixed account and several indexed accounts every year depending on the economic outlook.

Are Indexed Annuity Accounts Safe and Insured?

All fixed and indexed accounts are backed by the full faith of the insurance company offering them. Additionally, individual states require all insurance companies doing business in their state to contribute to the Life and Health Guaranty Association. State insurance regulators created a pool of money with the Guaranty Association Act to step in should an insurance company fail to meet the obligations of their contract holders. In most states, indexed annuity owners are insured up to $300,000 per household.

The State Insurance Departments also regularly check each insurance company for solvency before allowing them to sell products such as annuities. In this way, there are two levels of protection; the insurance company itself and the State Department of Insurance for each state.

Summary

In summary, indexed accounts are more aggressive than the traditional fixed annuities they evolved from. They are appropriate for consumers who might not be comfortable with direct exposure to the overall markets, but desire the possibility of significant account appreciation without market loss.

Please contact us to receive more information about equity indexed annuities.  We serve several states including Arizona, California, Florida, Georgia, Indiana, Illinois, Michigan, Missouri, New Mexico, Nevada, Ohio, Pennsylvania, Tennessee, Texas and others.