How does indexed annuity work

These payments can last for a fixed period of time, like 20 years, or for the rest of your life. Alternatively, you could also make a lump sum withdrawal or take all your money out at once, but this has some downsides. Annuities typically have a surrender period that lasts between five to seven years after you bought the contract. Consider this surrender period before signing up as fixed index annuities are supposed to be long-term contracts.

An index annuity is the same thing as a fixed index annuity. You may also hear fixed index annuities described as equity indexed annuities. Annuity companies use a few different names for the same product; this just comes down to their branding and personal preference. Fixed index annuities do not charge an upfront fee. Instead, the annuity company will deduct its fees from your account balance each year.

In years when your market index has a high return, the annuity company keeps a portion, according to the terms of your contract.

The fixed index annuity may charge an additional administration fee each year. When you sign up for an annuity, you can choose to purchase riders that provide extra benefits for the contract. For example, you could buy one that guarantees a minimum return over the life of the contract. An index annuity could pay a guaranteed minimum return, even when the market index loses money. It may also lock in your earnings over time to protect you from even greater losses.

The long-term expected return on a fixed index annuity is higher than other guaranteed accounts, like a fixed annuity or a certificate of deposit CD. This can help grow your savings more than inflation.

An annuity delays taxes on your gains until you take the money out, much like an individual retirement account IRA or k. This can help boost your after-tax return over comparable money held in a regular brokerage account. Between the annuity fees and the earnings cap, you could end up paying a sizable amount of your gains each year to the annuity company. If you cancel your contract before the surrender period, you could owe a significant fee to the annuity company.

Like a fixed index annuity, a variable annuity puts your money in stock market funds. But unlike fixed index annuities, variable annuities offer less certainty of returns: You get the full market return, good and bad. During good years, you can potentially earn more with a variable annuity. Instead, interest credits fluctuate based in part on the performance of one or more reference indices.

When a particular index is up, the annuity's value may increase: Interest credits are applied to the portion of the annuity's accumulated value that is allocated to that index's crediting strategy.

When the market is down, the interest rate declines to zero, but the value of the annuity holder's initial premium—as well as prior credited interest—remains intact. An annuity is a contract you purchase from an insurance company, designed for long-term investing.

The values will fluctuate based on investment option performance. Annuities have restrictions and limitations, and fees and charges will vary based on the product. You may be charged a penalty if you take your money out early.

Please remember that investing involves risk, including possible loss of principal. All guarantees and protections are subject to the claims-paying ability of the issuing insurance company.

Agents Financial professionals Partners. Clipboard-flat Claims Envelopes-flat Pay a bill. All insurance products ». For your ride. Life Pet Dental Umbrella Identity theft. Accident medical Specialty liability Travel Wedding. All financial goals ». Investing insights. See banking services provided by Axos Bank ». Email for closed account inquiries Nationwide Bank Nationwide Advantage Mortgage Company More info about closed bank account inquiries. The principal, which the insurer guarantees, never declines in value unless the account owner takes a withdrawal.

Insurers use several different methods to adjust the account's value, such as a year-over-year reset or a point-to-point reset, which incorporates two or more years' worth of returns.

As with other types of annuities, the owner can begin receiving regular income by annuitizing the contract and directing the insurer to start the payout phase. Life Insurance. Actively scan device characteristics for identification.

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