March 28, 2016

Equity-Indexed Annuities: Are you certain of what you are buying … or bought?

Back when I started working in the insurance industry some 28 plus years ago, deferred Fixed Annuity Contracts were fairly simple insurance products.  But all that changed when the deferred annuity on steroids, Equity-Indexed Annuities, also known as Indexed Annuities, entered the insurance and financial services marketplaces.


Generally speaking, a deferred fixed annuity is a contract between an individual and an insurance company that promises to pay a minimum guaranteed payout stream at a future date.  Before the annuity payout commences, contract growth accumulates at a fixed rated during what is called the tax-deferred deferral period.  Indexed Annuities were designed to fall within fixed annuity regulations and salesperson licensing requirements (meaning a securities license is not required to sell Indexed Annuities, only an insurance license), with the caveat that the fixed rate returns were tired to stock market index returns, such as the S&P 500 index.

Indexed Annuities are often marketed with phrases such as participate in the stock market and you can’t lose your money.  But are those phrases true?  Index Annuities are very complex insurance products, including terms such as “participation rate”, “cap rate”, “annual reset”, and “high water mark” to name just a few.  This Equity-Indexed Annuity alert from the Financial Services Regulatory Authority (FINRA) is a good quick reference tool.  Insurance agents received commission payments for the sale of Indexed Annuities

Indexed Annuities:
Do you understand what you bought or may buy?

During the periods of stock market downward volatility we’ve experienced over the past year, I provided 2nd opinions to a number of clients who were considering purchasing Indexed Annuities from an insurance agent.  During the current period of stock market recovery, I’ve provided consulting services to a number of clients who purchased Indexed Annuities during down markets and are now concerned about their Indexed Annuity contracts’ stock market participation calculations, among other concerns.
Outcome?  In every instance, although my clients are intelligent people, it has been clear they did not have a comprehensive and accurate understanding of the Indexed Annuity Contracts prior to purchase or potential purchase.
Do you have questions or concerns about Indexed Annuity Contracts?  For information about my Consulting, Expert Witness, and Tax Services (including Consulting Services to address annuity concerns) visit Fouts Financial Group.

Mary Rae Fouts

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