Events in the market have lined up just right for equity indexed annuities to become increasingly popular. According to Investing Daily’s “Surging Interest in Stock-Based Annuities” by Bob Carlson, it is a combination of volatile markets, low returns, and low interest rates that has renewed investors’ interest in these annuities. Your investment is not directly in stocks and bonds, but the insurance company paying you bases your interest on the overall performance of a specific index, like the S&P 500. The guaranteed yearly return is usually around 1% to 3% over the life of the policy, so specific yearly returns that are high or low might not make much of a difference in your individual interest.
If you are researching equity indexed annuities, there are important terms to understand in the product you think you might purchase. You want to know which index your annuity is associated with, the participation rate that the insurance company calculates your return at, and what the ceiling is on the returns you could possibly receive. The best annuities for your investing have a combination of factors that appeal to your future goals.
Point-to-point and averaging are the two basic types of formulas used to determine your return. There are many other types of formulas based off these two, so make sure you are aware how your individual return is calculated. Other things to consider with your annuity purchase are any associated trade-offs, your expenses, whether the insurance company can make any changes, commissions you are paying, if investment bonuses are available, how long the distribution phase is, and the ratings or safety of your insurance company. Equity indexed annuities are great investments right now if you do your research and know exactly what product and terms you are purchasing.