Hybrid Annuity Review

Hybrid Annuity or Fixed Index Annuity review

Would you like an annuity that tracks the performance of the stock market, yet helps to protect your principal when the market declines? The fixed-indexed annuity could help you to cover these objectives.Rick Loek

Hybrid Annuity Review

The hybrid annuity can offer some market risk protection, tax deferral, a minimum interest rate guarantee, probate avoidance, and guaranteed minimum income payments for life. The interest earnings for these annuities are based upon the growth in an accepted equity index, such as the S&P 500 Index, Dow Jones Industrial Average, and Russell 2000 as well as a host of other indices. The interest rate applied to these annuities is based, in part, upon the overall movement of the index.

Many of these annuities will base the interest rate upon a pre-determined percentage of the market movement. For example, let’s assume for illustration purposes that the annuity company set its participation rate at 50% of the index movement of the S&P 500. Let’s assume that the S&P 500 had a good year and increased by 30% (this is a hypothetical assumption and is not based upon the performance of any particular investment). Let’s also assume that the interest rate could actually move as high as 15% before any rate limitations were applied. Based upon the facts of this example, the interest rate that would apply to this hypothetical account would be 15% (before contract fees and expenses are subtracted from the account balance). Please note that participation percentages do vary among companies and can range anywhere from 50% to 90%. Some companies also set a cap on the interest rate, which can vary from company to company (typically between 10% or less).

Risk Protection

The second fundamental feature of these annuities is the market risk protection. In the event that the market index should go down, this feature will help prevent your principal investment from being reduced below a certain percentage of your principal investment. The minimum guaranteed account value typically can also vary among companies and generally ranges anywhere from 75 to 100% of your premium, depending upon the type of product involved.

These annuities can be useful for those who wish to participate in the stock and bond markets and not have their principal at minimal risk. These annuities are also called equity indexed or fixed indexed annuities. The short name is FIA or EIA. These annuities can be simple or very complex and difficult to understand. The more complex the annuity, the less likely it is appropriate for retirement planning and seniors – beware, if you don’t understand the product, you should give serious second thought to this product. See below “Key Questions to ask your advisor” to help determine if this is a fit for you. NOTE: This does offer protection or guarantee of the principal.

Hybrid Annuity Riders

Many companies have riders for their index annuity products, some are better and each needs to be evaluated for the appropriateness and if this is a fit for each client.
Features: income for life, rising income, death benefit, compound interest during deferral, (4%, 5%, 6%, 7%, 8%)

Ask your advisor

  • What other income riders did you consider before recommending this one?
  • How can we be sure this is the *best* product combination for me?
  • Can you show me the other three runner up products?

Potential Benefits

Income for life


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