Fixed Index or Hybrid Annuity

Would you like an annuity that tracks the performance of the stock market? Would you like an annuity that also helps to protect your principal when the market declines? The fixed index or hybrid annuity could help you to cover both of these objectives.  This annuity has been called an equity indexed annuity, fixed index annuity, and a hybrid annuity.

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 predetermined percentage of the market movement. To illustrate, let’s imagine that the annuity company set its participation rate at 50% of the index movement of the S&P 500. Let’s imagine 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 imagine 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 of  15% would apply to this hypothetical account. Please note that participation percentages do vary among companies. Some companies also set a cap on the interest rate, which can vary from company to company.

The second fundamental feature of these annuities is the market risk protection. Let’s say that the market index should go down. Then this feature helps 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. That value 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 have their principal at minimal risk.  These annuities are also called equity indexed or fixed index or hybrid annuity(ies).  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 NOTE: BEWARE – if you don’t understand the product, you should give serious second thought to this product.

NOTE: This DOES offer protection or guarantee of the principal.

Fixed Index or Hybrid Annuity Riders

Many insurance companies have riders for their index annuity products. Some are better than others. Each needs to be evaluated for appropriateness and if this is a fit for you (each client).

Features:  income for life, rising income, death benefit, compound interest during deferral, (4%, 5%, 6%, 7%, 8%).

Ask your adviser, “What other income riders did you consider before recommending this one?”