These day seems that investors are looking for safety and security more than ever, especially after the big stock market correction witnessed in 1999-2002. Four years later, many brokers and variable income accounts have not yet recovered their losses from that period. Unfortunately, many investors were counting on funds to provide income during their retirements.
Thus the introduction of the equity indexed annuity, or EIA, the main flow of the market. Designed to provide a greater return than traditional fixed income, equity indexed annuity can be a reliable alternative to a brokerage account. Only fifteen years, several billions of dollars were deposited in such accounts.
Annuities in General
First, a potential investor must have a bit of background information. Generally, an annuity works as follows: The investor, usually called an owner or annuitant, agrees to deposit funds with an insurance company for a certain period of time, say 7 years. The annuity is to be said in deferred during that period of time. While in deferment, most of annuities, will allow the distribution of partial interest annual earnings of 10% or a withdrawal or the free distribution required minimum mandated by the IRS (Many annuities allow for large distributions if the owner is confined to a home or is terminally ill.) Yet another way to distribute income is U.S. dollars through a systematic withdrawal, cited as an annuitization, based on a predetermined time, say 5 years. However, if the consumer decides to take the whole contract out at once before the annuity has matured, then the sanctions are invoked based on delivery in time annuity contract. If the investor passes away, the amount of fixed annuity is paid to a beneficiary through unless other arrangements were made.
Technically, equity indexed annuities are characterized as fixed annuities by the various Departments of Insurance in each state. That is, at any point is that the investor never own variable any type of security as a stock, bond or mutual fund account under the EIA. These accounts do not fluctuate in value as a variable annuity could. However, the equity indexed annuity is not like your typical fixed annuity either.
The Equity indexed annuity Advantage
What EIA makes different from a traditional fixed income is the way interest is credited to the account. Typically, the insurance company vai an option to buy a particular index and the Dow, S & P 500 or the Nasdaq. After a period of time, usually one year, the option contract comes due. One of two things will happen then. If the market index has advanced, the option is credited with interest and principal is credited to the annuity. Conversely, if the market has retreated, the option expires and no interest is credited to the account that year.
In circulation, or the annuity gains or maintains value each year, but the investment can not lose value due to negative market changes. (It is also important to note that all EIA has a minimum guarantee associated with their returns. For example, this guarantee may indicate that if the market is diminishing each year over the life of the annuity, the insurance company will guarantee payment of 2% to 88% of the premium paid. However, it is virtually unprecedented security for this feature to be used.) Investors should also know that most equity-indexed annuities have a fixed interest account as an additional investment option. When interest rates are high and the stock market is in decline, the rate of account may be used for interest on credit to the annuity principal.
Equity Index Performance
How to implement these annuities? Historically many of these accounts have average returns of 7% or better. In years when the broader markets have performed so well has EIA. It is not uncommon for investors to enjoy interest payments during the prosperous years of 10-20% or better. But the crucial value of these accounts is performed during rapid market declines, when the equity indexed annuity will maintain its interest and gains from last May years.
These facts explain the recent popularity of environmental impact assessments, especially among retirees looking to preserve a life & 39; S in the value of hard work. With the advancement of the market and thereby decreasing rapidly, many consumers are looking for safety and security without having to sacrifice reasonable interest returns. Granted, these annuities will not return 50% in one year as a lucky stock or fund could choose, but peace of mind knowing their investment gain investors can not refuse has many placing a portion of their retirement funds in these accounts.
A. M. Hyers has been working in the insurance industry and investment for almost ten years. He owns and operates Ohio Insurance Plan, an independent insurance agency doing business in Ohio, Missouri and Georgia. His agency offers products for individuals, families more companies. Fixed, Immediate and Equity-indexed annuity Prices in Ohio, Missouri and Georgia
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