Investing in a guaranteed indexed annuity with fixed rates is a wise investment choice. It makes even more sense when interest rates are high. Many indexed annuities start with high first-year caps and participation rates only to decrease them yearly at renewal.
However, there are a handful of indexed annuities that declare fixed caps and participation rates for the entire term of the annuity contract. This means you won’t watch your caps and rates decrease each year. With these unique annuities, you’ll know your growth potential cannot decrease.
How Do Indexed Annuity Rate Locks Work?
Most indexed annuities have several subaccount options to choose from. Each year, you can reallocate your funds (partially or entirely) to different account options. Each year, the insurance company will declare the rates for the upcoming term. Most are one-year commitments.
And almost all indexed annuities offer indexing options into the S&P. A common indexing strategy is the point-to-point method. This option tracks the beginning and end points of the S&P 500 over a 12-month window to calculate how much interest is credited to the account.
The insurance companies use a yearly cap (think of it like a ceiling) to determine the maximum potential gain should the index increase. The higher the cap, the better the earnings potential. And when interest rates are high, so are the caps. This cycle benefits investors.
The downside is that insurance companies can adjust these caps each year depending on market conditions. Owners might start with a 12% cap (for example) just to see it renew at 10% the next year. Over the term of a 5, 7, or 10-year indexed annuity, any decreases will significantly affect the earnings potential.
The Case For Guaranteed Annuity Caps And Participation Rates
The annuity marketplace is as competitive as it’s ever been. And with competition comes innovation. And now a handful of insurance companies offer indexed annuities with rate locks.
This means the yearly caps (and/or participation) rates in some indexed annuity subaccounts are fixed for the entire term. This is a very valuable development for investors.
Imagine having an S&P 500 point-to-point account with a cap above 10% that never changes. This means you never have to worry about the rug being pulled out from under you. You can safely invest in an indexed annuity knowing that the growth potential in certain accounts will never change.
Going A Level Deeper On Guaranteed Indexed Rate Locks
It’s important to know that within any guaranteed indexed annuity, there might only be one account with a rate lock. The other subaccounts will usually change each year. And some of the other subaccounts might offer better earnings potential in any given year.
That’s why flexibility is important. Some indexed annuities with S&P 500 rate locks require the funds to be in that particular account for the entire term. However, other companies allow consumers to switch back and forth each year with the rate-locked account always being an option. Most consumers prefer the latter.
Several factors will determine what options are best. Flexibility, indexing options, caps, participation rates, company rating, etc. all go a long way in determining potential gains. We help our clients compare their best options.
Who Offers Guaranteed Indexed Annuity Accounts?
Currently, there are a small handful of insurance companies offering indexed annuities with guaranteed caps, participation rates, and/or spreads for the entire term of the annuity contract. Some are for short 5 year terms while others can lock in rates for up to 10 years.
Aspida Life, Guaranty Income Life (GILICO), MassMutual, and Mutual of Omaha are companies offering some of the best rate lock indexed annuities right now. We believe new products from additional companies are possible as these investments gain momentum.
Not all accounts will work the same way, but they are easy to compare. With our help, you can find the annuity account with the best terms for your individual needs.
Contact Us For Rate Lock Illustrations
At Hyers & Associates, we’ve offered indexed annuities for over 25 years. We are always researching the most suitable annuity options for our clients. Whether it’s a fixed MYGA or a guaranteed indexed annuity with a rate lock, a lifetime income policy, or one with a guaranteed increasing death benefit, we can help.
Our independence allows us to offer solutions from dozens and dozens of carriers. Contact us today to discuss individual annuity plans that best suit your needs and goals.