Annuity / IRA

Annuity / IRA.

How do
Annuities Gain…
Interest & Liquidity

Interest Crediting

Fixed index annuities credit interest based upon the performance of a benchmark stock market index (S&P 500, Dow Jones, NASDAQ). There is zero downside risk in negative stock market years. In return for that safety, your potential gains are normally "capped" (i.e., determined by a cap rate or participation rate).

Cap Rates

A cap rate is the highest percentage gain that the insurance company will credit to your account during the specified period. Cap rates can range between 3% and 10%, depending on the duration of your annuity. This means that if your annuity has a cap rate of 6% and the benchmark S&P stock index goes up 12%, you will be credited with 6% interest. Currently, some companies offer an uncapped strategy on some of their choice indexed products.

Participation Rates
A participation rate refers to the percentage of the benchmark index gain the insurance company will credit to your annuity for a specified period. For example, if the participation rate is 25% and the stock market index goes up 12%, you will be credited with 3% interest (i.e., 25% of the stock market index’s gain).

Premium & Income Bonus
Many fixed index annuities offer premium bonuses or an income bonus, which are credited to your annuity at the moment premiums are added. Currently, premium bonuses range from 4% to 10% and income bonuses can range between 5% and 20%, depending on the duration of the annuity. Some companies may only pay the bonus if you annuitize or activate income with that company at some point in the future. If you choose to withdraw your money in a lump sum before the surrender fee period is over, the insurer may retroactively remove a portion of your premium bonus.

Expenses
Fixed index annuities do not have upfront sales charges or fees. 100% of your premium - without any deductions - goes directly to work for you in your account. Fees will only be applied if you surrender the annuity early, or if you purchase riders (i.e. income rider).

Penalty-free Withdrawals and Surrender Fees
Most insurance companies allow you to withdraw earned interest without having triggering a surrender fee. Most companies allow penalty-free withdrawals up to 10% of your account value (principal plus accumulated earnings) each year after the first year. If you want to withdraw more than 10% of your contract value, you will likely be charged an Early Surrender Penalty.