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Upside Index Potential: A Fixed Index Annuity Breakdown

Insurance Forums Staff

Which Fixed Index Annuity (FIA) offers the best upside index potential?  It depends on the client, the state, the length of contract, and other relevant factors.   An indexed annuity is a fixed annuity with a call option on the S & P 500 Index, or in select cases, another index. The vast majority of the call options are one year in length, but can be as long as five years. The S&P 500 index represents over 90% of the index option choices, although other index selections can be found in some product offerings.

FIAs have received a lot of buzz as an attractive investment prospect, as it provides investors with a guarantee of principal, just as a traditional fixed annuity would.  Capital that is deposited into an FIA is guaranteed not to fluctuate with market conditions, so a contract owner of an FIA participates in market-indexed interest without huge market losses.  Additionally, annuity values accumulate on a tax deferred basis until withdrawn. Money input earns interest on dollars that would otherwise be paid as taxes, potentially earning greater returns.

One agent noted, “Nobody really knows what the index is going to do in the future, but we do know that it is up almost 16% over the past year (so while you’re you’re not getting the same return as the S&P, you’re still would have returned over 13% – not bad). The index is designed to be a low volatile index which I think you you can argue can be good or bad. It’s a great product in my opinion for people looking for the most upside with the annual reset.”

Writer Stan Haithcock further noted in Marketwatch that “The upside to an indexed annuity is that there is no downside. The downside to an indexed annuity is that there is very limited upside.”  Think you know everything about FIAs?  Want to know which ones have been bringing success to the forum’s agents? Check it out.



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