What is Fixed Index Annuities?

Fixed index annuity is nothing but one kind of insurance. Annuity means a fixed amount of money or allowance paid you yearly. Fixed index annuity is a special type of annuity where the interests are paid on the basis of one or more major stock index. A great feature of this type of annuity is that the principal and interests are never at risk of falling value. The investment only goes down if the person takes money out or chooses one of the many different added benefits which might be available. Equity index annuity and bonus annuity are the other name of fixed index annuity. There are three types of annuity namely traditional fixed, index annuity and variable annuity. Among them fixed and variable are major.

Difference between Fixed and Variable Index Annuities

There are huge differences between fixed and variable index annuities. Variable annuities are mutual fund like investment and directly invest to the market. If the market goes upward than your account will gain profit and will earn more. It is not free from market fluctuation. On the other hand fixed annuities are based on market but not directly related to market. The interest is paid out at certain intervals with certain rate no matter what market does. It is free from market fluctuation.

Benefits of annuities

The benefits of fixed index annuities are shortly described below

• Long term investment: Fixed annuity is not a short term investment but a long term. It may provide you income for future time when you will get retired.
• Regulation: This type of investment is regulated by banks and state insurance departments.
• Tax free: This investment is tax deferred that means you don’t have to pay tax until you withdraw your money.
• Highly bifacial: If you study the index annuity, you willfind that there are amazing benefits in this investment. Such as one very popular benefit is that it will increase your capital with a certain rate per year no matter what market does.

Disadvantages of Fixed Index Annuity

Fixed index annuity has some problems too. You must get a clear concept about them.

• Complexity: It is a complex type of investment. There is wide range of variety of annuity. These are so much complex that many time people fail to understand it clearly.
• Sometimes fail to full return:  Sometimes they failed to give the entire return of the market index they are tied too. In fact different index annuities calculate the gain in different ways.
• Fees: There is another problem that it has surrender charge. Some annuities charge is as high as 20% and many people can’t stay here for a long time.

Conclusion

You have already got the idea about Fixed Index Annuity! Now you know what is perfect for you or not. Choose your financial service carefully. Never make any mistake to choose the best coverage for you. If you make mistake you can suffer in the long run! Be happy with the best financial protection coverage.