Fixed annuities, sometimes called guaranteed annuities, are considered safe because you can count on receiving the specific return you’re promised each year. The guarantee is backed by the insurance company issuing the annuity, not the government. But if you buy your contract from a highly rated company, its financial strength and reputation stand behind your contract.
Rating services such as Standard & Poor’s, Moody’s, A.M. Best, and Fitch rank annuity providers on their overall financial condition, which underlies their ability to meet their obligations. These reports are available online, from your financial adviser, and from the insurance company if you request them.
While you usually buy a fixed annuity to provide retirement income for your- self, or for yourself and your spouse, you can also purchase an annuity to provide lifetime income for another person whom you support, such as an elderly relative or a disabled child.
If you can’t decide between a fixed and a variable annuity, or if you’re uneasy about investing directly in the stock market, you may want to investigate a fixed index annuity.
This simplified hypothetical illustration shows the upside gains and downside protection that a fixed index annuity provides. Index gains are reflected in a rising account value, but index losses do not reduce the account’s value. Interest allocated to the contract compounds over time. Contract features, such as signing bonus, reset of crediting method, or locked in gains, may boost value.
Many fixed index annuities base their contract return on two indexes rather than just one. You choose the portion of your return that will be determined by each of the indexes. The contract you make with the annuity issuer will explain the indexing features it uses to calculate the interest that’s added to your account. In most cases, there’s some combination of a participation rate, a spread or margin, and a cap.
Contributions from the book Guide to Understanding Annuities in this press release are used with permission from Light Bulb Press.