Long-form
Fixed Index Annuities FIAsSummaryIn this 1:45 Annuities Explained video, Jeffrey Scott McLeod, LUTC, covers “Fixed Index Annuities FIAs.” Can you make money with annual reset inside of a fixed index annuity? Let's say your index beginning date is at the very top of the market. Well, the index annuity would have made zero interest. But annual reset means that your dollars start all over wherever the index goes down to and starts over again. Next year from 2008 to 2009, the index went down again another 20%, the annuity would have made zero. Now, from the bottom up, you get a cap, margin, spread or administrative fee or a participation rate of that gain. You either get a margin spread or administrative fee of the gain or a participation rate of that gain or a cap of that gain. The Wharton School of Business in Pennsylvania did some research years ago and concluded that annual reset was far superior over two-year or term endpoint structures Insurance education only—not securities advice. Key takeaways
From the NAIC Buyer’s GuideFixed indexed annuities are a type of fixed annuity that earn interest based on changes in a market index; the interest rate is guaranteed never to be less than zero, even if the market goes down. When you buy an indexed annuity, you are not investing directly in the market or the index. Index interest formulas may use features such as participation rates, cap rates, and spread/margin rates, so credited interest may reflect only part of an index change. If the index goes down over the period, zero interest is added for that feature and annuity value will not go down from that index change as long as you do not withdraw the money. Under an annual reset (ratchet) method, index-linked interest is determined each year by comparing the index value at the start of the year with the value at the end of the year, subject to the contract’s formula. Interest credited for a year is locked in; the next year’s starting index point resets. Sources: NAIC Buyer’s Guide for Deferred Annuities (2022); NAIC Buyer’s Guide for Fixed Deferred Annuities — Appendix for Equity-Indexed Annuities (2007 materials). The guides do not endorse any company or policy. State insurance departments: www.naic.org. Questions about fixed index annuities? Call or text 501-658-9882 · Book a time on the calendar Insurance-only disclaimer Jeffrey Scott McLeod, LUTC, is a licensed insurance producer. Content on this page is educational and discusses insurance products only—not securities, brokerage, or investment advisory services. Texas license 901162. Arkansas / National Producer Number 558629. Product availability, rates, and features vary by state and insurer. Read the NAIC Buyer’s Guide and the insurance contract before you buy. More videos |
Jeffrey Scott McLeod, LUTC — Licensed insurance producer. Texas license 901162. Arkansas / National Producer Number 558629. Insurance products only; not securities or investment advisory services.
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