What is an Annuity?

An annuity is a financial product issued by an insurance company designed to provide a steady stream of income, typically during retirement. An individual pays either a lump sum or a series of payments, and in return, the insurer promises regular payments back to the individual, either for a set period of time or for life. One of the key benefits of annuities is tax-deferred growth on the earnings inside the contract.

Fixed Annuity

A Fixed Annuity provides a guaranteed interest rate for a specified period of time. It is best suited for conservative investors seeking stability, protection of principal, and predictable income. The value of the contract does not fluctuate with market conditions, making it a safe and reliable option for long-term planning.

Fixed Indexed Annuity (FIA)

A Fixed Indexed Annuity offers the safety of principal protection, but with the potential for higher returns because the credited interest is tied to the performance of a market index (such as the S&P 500). Unlike variable products, the principal is not at risk in the market. However, returns are often subject to caps, spreads, or participation rates, which limit the portion of market gains credited to the account.

Key Difference

While both products protect principal and offer tax-deferred growth, a Fixed Annuity provides a stable, guaranteed rate, whereas a Fixed Indexed Annuity provides the opportunity to earn more through market-linked growth, while still offering downside protection.

Example of a 10 Year Fixed Index Annuity ...