Renwanz Insurance & Financial Solutions, Carlsbad, CA
The word "equity" tends to lead to a bit of confusion in the definition. An equity indexed annuity is not actually invested in the stock market. An index such as the S&P 500 would be referenced over a specified period of time (such as one year) and if the index has increased in value, your annuity would be credited interest.
One of the advantages of an indexed annuity is that if the referenced index declines over any year, you would not lose any value as a result. You would simply not be credited with interest for that year.
That is an excellent question! This type of annuity confuses a lot of people because of its' link to the markets. It is easy to think that your annuity is based on the purchase of stocks, and thus subject to the gains and losses of that stock. In reality, with this annuity, you purchase nothing in the market. Your gains and losses are based upon the upward or downward movements of the market itself. The annuity has guarantees that help keep you from losing money when the market goes south, and pays a fixed interest amount based upon your contract specifics and the amount of upward growth the market has made. So like a traditional fixed annuity, you are guaranteed to not have less than you started with, and generally earn a guaranteed interest rate (that may change over time, but is defined in the contract through floors, caps and participation rates). I hope that helps, thanks for asking!
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One of the advantages of an indexed annuity is that if the referenced index declines over any year, you would not lose any value as a result. You would simply not be credited with interest for that year.
You can't lose your principle and average GUARANTEED rates are around 2% on the low end to 4% on the high end.
You get a nominal/limited upside gain of the stock market along with knowing you can't lose any money.
Somewhat fixed.