Buyer's Guide To Best Equity Indexed Annuities
It's advisable to go about this in a step-by-step manner, starting off by learning how a basic annuity product works and how the growth in the account can be set to track an index. Once an investor understands it works, it becomes far easier to find the best equity indexed annuities. All that needs to be done is to compare the EIAs available based on a checklist of factors such as minimum interest rate guarantees, choice of index and the participation rate therein.
An annuity is a financial product offered by an insurance company which enters into a contract with the buyer. This annuitant agrees to pay the insurer a lump sum amount or regular premiums. The insurance company in turn agrees to provide the buyer an income stream with regular payments that may start right away or at a future set date specified in the contract.
It obviously works great as a retirement plan account. The annuitant pays in a monthly premium out of his or her paycheck to build up the account, and then expects to be provided an income stream after retirement. Apart from the payment options (lump sum vs. Premium, deferred vs. Immediate, etc.), the way in which the contract is structured varies quite a bit in other ways too.
For instance, the contracts don't have to be just for an individual, and may cover a whole group. The rate the insurer offers may be variable or it may be kept fixed. The latter type of contract specifies the exact dollar amount in premiums that need to be paid each month, and it also specifies the interest rate that will be paid on the accumulated funds in the account. The earnings in a variable annuity account, on the other hand, depend on how well the underlying investments perform.
The interest rate offered by this kind of an investment account may also be linked to an index. Depending on the type of financial product, it may be indexed to anything from a stock index to a commodity-based one. In this case where the product is an annuity, an equity index such as the S&P 500 or the Russell 2000 is usually the best choice.
An EIA buyer should be looking at a few specific factors to choose the right annuity. The index to which the growth is linked is obviously of paramount importance. But the method the insurer uses to track the chosen index is just as important.
Some companies use a method known as point to point, where the rate is adjusted on certain key dates such as at the beginning of the contract and on the maturity date. If the index gains a lot and also loses the gain in between these points, then the annuitant realizes no benefit. This shows the importance of finding an annuity whose rate is frequently adjusted to closely match the index.
The minimum guaranteed rate of return is another important point. If such a guarantee exists in the contract, then the insurer must pay interest at this level even if the indexed returns fall below it. The reverse may also hold true, with the insurer specifying a cap on the maximum rate of returns. For instance, many companies commonly limit interest rates at in between three to eight percent.
An annuity is a financial product offered by an insurance company which enters into a contract with the buyer. This annuitant agrees to pay the insurer a lump sum amount or regular premiums. The insurance company in turn agrees to provide the buyer an income stream with regular payments that may start right away or at a future set date specified in the contract.
It obviously works great as a retirement plan account. The annuitant pays in a monthly premium out of his or her paycheck to build up the account, and then expects to be provided an income stream after retirement. Apart from the payment options (lump sum vs. Premium, deferred vs. Immediate, etc.), the way in which the contract is structured varies quite a bit in other ways too.
For instance, the contracts don't have to be just for an individual, and may cover a whole group. The rate the insurer offers may be variable or it may be kept fixed. The latter type of contract specifies the exact dollar amount in premiums that need to be paid each month, and it also specifies the interest rate that will be paid on the accumulated funds in the account. The earnings in a variable annuity account, on the other hand, depend on how well the underlying investments perform.
The interest rate offered by this kind of an investment account may also be linked to an index. Depending on the type of financial product, it may be indexed to anything from a stock index to a commodity-based one. In this case where the product is an annuity, an equity index such as the S&P 500 or the Russell 2000 is usually the best choice.
An EIA buyer should be looking at a few specific factors to choose the right annuity. The index to which the growth is linked is obviously of paramount importance. But the method the insurer uses to track the chosen index is just as important.
Some companies use a method known as point to point, where the rate is adjusted on certain key dates such as at the beginning of the contract and on the maturity date. If the index gains a lot and also loses the gain in between these points, then the annuitant realizes no benefit. This shows the importance of finding an annuity whose rate is frequently adjusted to closely match the index.
The minimum guaranteed rate of return is another important point. If such a guarantee exists in the contract, then the insurer must pay interest at this level even if the indexed returns fall below it. The reverse may also hold true, with the insurer specifying a cap on the maximum rate of returns. For instance, many companies commonly limit interest rates at in between three to eight percent.
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