A ﬁxed index annuity, or FIA, 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. In addition, FIAs offer the potential for market-linked upside with downside protection.
// WHY IS IT CALLED A FIXED INDEX ANNUITY?
Fixed: You can be guaranteed a minimum rate of return from your contract.
Index: You can take advantage of the market upside by linking the interest credits of your annuity to changes in popular indices, such as the S&P 500 or the DJIA.
Annuity: An annuity is a contract between you and an insurance company. In exchange for paying an initial premium, the insurance company offers you regular income payments, either starting now, or down the road.
// WHO IS INVOLVED IN A FIXED INDEX ANNUITY?
The Insurance Company issues the annuity and is responsible for backing its guarantees.
The Annuitant’s life expectancy is used to calculate payments; the Contract Owner makes decisions regarding the annuity. These may be the same person, or not.
The Beneficiary receives the death beneﬁt of the annuity. Without them, the annuity may be subject to probate. If beneﬁciaries are deﬁned, the proceeds will pass to them without probate.
// HOW DOES A FIXED INDEX ANNUITY WORK?
Part One: Accumulation
As soon as you purchase an annuity, it begins gaining interest. Interest is generated from the ﬁxed rate set by the insurance company, or by the performance of the index the annuity is linked to. This interest accumulates tax-deferred until distributions are taken, growing your money more quickly. In addition, some contracts may include a Lifetime Income Beneﬁt Rider for an additional fee. This rider will typically also accumulate at a set interest rate for income calculations during the Distribution Phase.
Part Two: Distribution
When you decide that it’s time to receive income payments, the distribution phase begins. You can choose to annuitize to take payments out on a set schedule, which can be adjusted to last you a lifetime. As an alternative, you can take income withdrawals off of the Lifetime Income Beneﬁt Rider, which will last for a lifetime. Whatever method you choose, a ﬁxed index annuity can help you lead a comfortable retirement.