Annuities
Potential Indexed Interest
When it comes to your legacy and retirement, we can show you how FIA’s work.
Fixed Index Annuity Rates
You might think that when something is “fixed,” that you can’t change it. While this may be true regarding the index interest potential of an FIA, you may also have lots of flexibility with this type of annuity. For example, there is a choice of which index (or multiple indexes) you’d like to select. Remember, a fixed index annuity is not a stock market investment. Instead, it is an insurance product that links with an external index in terms of potential index interest. Also, some annuitants (owners) may decide how much of their FIA might go to one index versus another.
When it comes to fixed index annuity rates, you may want to also consider crediting method. Here’s how it works. First, your insurance company lays out the rules regarding your particular FIA. For example, they may include things like timelines for when you might see them apply the potential index interest. If there is any during that time, you get your annuity credit. Then, you may be able to chose whether you get this credit annually, monthly, or via some other time frame.
Crediting methods may also vary in terms of how the interest calculation works. For instance, some fixed index annuity rates may use a value (average), looking at a certain time range. Or, the amount you get might be based on a difference between the rate at the start of a time period versus at the end of it. Also, you may see some FIAs where the change in the index is noted at the anniversary date of your contract.
Rule Number One
The annuitant of a fixed index annuity (FIA) is the one who receives the payout amounts. If you are planning to get income from your FIA, then the annuitant is you. There are other “roles” involved, as well. First, a licensed insurance advisor, such as Jon Loyhayem, may offer you some guidance regarding these types of annuities. In addition, other labels you’ll see when it comes to an FIA are:
Issuer (the insurance company)
Owner (the buyer)
Annuitant (receives the payout)
Beneficiary or Beneficiaries (receives the death benefit)
Potential Increase?
FIA doesn’t have “growth” in the same way some other retirement options do. However, potential indexed interest may apply to your policy, depending upon your FIA terms. First, your FIA has indexes that it links to. In fact, you may be able to choose which index(es) you would like. However, you don’t have to worry about making this choice on your own. Total Financial Solutions can help walk you through your options so you can make the choice you feel is best. Also, there are different choices when it comes to crediting method. Finally, the fixed index annuity rates that get added to your policy may vary as well.
Once the index rate hits a pre-set point, you may get a portion of that potential indexed interest. Yet, if the index drops, nothing happens to your principal. Other factors, such as caps, participation rates, and spreads, may also impact how much you get. Of course, each annuity and situation is different. So, be sure to consult us about any current insurance or annuity policies you have now. Want to learn more about how these FIA’s work? Attend one of our upcoming seminars or webinars.
3 Considerations with Potential Fixed Index Annuity Rates
CAPs
Insurance carriers may set a maximum interest rate for your FIA. However, keep in mind that your principal remains safe when the index rates drop. Although you may not capture all the potential index interest increase, you also protect your principal from loss. Rates under the cap rate get applied up to the cap rate amount.
Participation Rate
The idea here is you get some of the index increase, but not all of it. Again, the benefit of an FIA is your principal remains constant, even if the index drops. Yet, you can see some increase in potential index interest rate when the index is up. You can potentially see an increase in value, without losing your principal.
Spread
Also a way to control the total potential indexed interest on fixed index annuity rates. This number tells you, essentially, how much of the potential increase your annuity may capture.
Fixed index annuities can be a simple concept - if you seek the right guidance. Reach out to schedule an appointment to learn more.
Now or Later?
In addition to benefits you may decide to leave to loved ones, an FIA may provide income during retirement as well. Typically, there is a certain percentage of your money available for withdrawal each year. Of course, this withdrawal should happen after your accumulation phase in order to avoid penalty. But, some of your money may be accessible sooner in certain emergency circumstances. Also, some retirees may choose to hold off on any income as a way to have potential indexed interest applied to a larger account amount.
Your retirement should be all about your choices. Contact us today to learn more about insurance and annuities concepts that may help you make those choices.
Disclosure & Disclaimer
We are not affiliated with any educational or government agency. This material is for informational purposes only and is not intended to be a solicitation for or offering of any product or investment. We do not provide investment, tax, or legal advice. Always consult with your own qualified advisors regarding your individual situation. Insurance and annuity products are not suitable for everyone. They involve fees and charges, including potential surrender penalties. Optional benefits and riders may involve additional annual costs. Life insurance requires medical and often financial underwriting to qualify. Loans and withdrawals from life insurance policies reduce policy death benefits and cash values, and may cause the policy to lapse or require additional premiums to remain in-force. Annuity withdrawals are subject to ordinary income taxes, and may incur a 10% IRS penalty if taken before age 59½. Product features and availability vary by state. Fixed indexed life insurance and annuities are not direct investments in the stock market or any index. The interest credited may be linked to the performance of an external index, but the contract does not directly participate in any index or equity/fixed interest investments, nor are you buying shares in an index. Crediting is subject to limits set by the issuing company, such as caps, spreads, and participation rates. Long-term care riders on insurance or annuity products are not a replacement for traditional long-term care insurance. Guarantees are backed solely by the financial strength and claims-paying ability of the issuing company. The offer and sale of insurance products may only occur in states where the agent is licensed and the product is approved for sale. Investment advice relating to securities may only be provided by a properly licensed individual through a licensed affiliate entity, unless otherwise exempt. Comments about past performance should not be construed as a guarantee or assurance of future results. This website may include concepts with legal, accounting, and tax implications. We do not provide specific legal or tax advice, nor do we promote, market, or recommend any tax plan or arrangement. Consult a qualified professional for guidance. No representation is made as to the accuracy or completeness of the information provided here or through any external links. Visiting this website does not create an agent-client relationship.
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