Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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An equity indexed annuity is an annuity that is tied to an outside investment product’s value, usually the S&P 500 index. Such an annuity will grow as the index rises.

However, it does not fall if the index drops. This makes for a financial product that has the possibility of excellent growth with none of the risk of losing your initial investment.

Compare online annuity rates by entering your zip code into the free tool box now!

This is one of the most popular types of annuities on the market today with up to 30% of all annuities that are being sold now being of this type.

The fact that there is upward growth in the product and no risk of losing your investment makes it a very popular option with people who have been very shaken by the economic recession this country has gone through and those who are generally conservative investors.

Understanding How Equity Indexed Annuities Work

Essentially an equity indexed annuity is an annuity that has a growth period that is dealt with on a yearly basis by the insurer. A one-year option is taken out on the index the annuity is tied to. If the index has risen at the end of the year, the option is exercised and the amount earned is then added to the initial investment you have made in your annuity to increase its value. The total is then applied to another option for the next year.

Your insurance company will also give you a guaranteed minimum amount of return on your equity indexed annuity, regardless of the market, so you always know that you will at least have a specific amount at the end of the growth period. It is a much better choice than a variable annuity.

An equity indexed annuity grows tax-free, like other annuities. The risk involved is practically non-existent, unless you incur fees for early withdrawal. Therefore, this type of investment is a very good choice for anyone who wants to plan for a steady future income. This type of investment can be made as a lump sum payment or monthly for the growth period.

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Decisions to Make Prior To Taking Out an Equity Indexed Annuity

Prior to taking out any annuity, you will be faced with decisions to make. The purchase of an equity indexed annuity is no different. You will need to decide on:

  • The number of years you plan to invest in the annuity
  • How many years you want to receive payments from the fund
  • Most investors choose to invest and let this type of annuity grow for at least 10 years before payout begins.

If you are interested in this type of investment with the intention of taking the full value out after the growth period, rather than receiving monthly annuity payments, like traditional annuities, you should look for a firm that charges minimal fees for such withdrawals.

Buying an Equity Indexed Annuity

Whenever you are looking to make a financial investment, understanding the product is essential. Asking questions such as “What is an equity indexed annuity?” prior to investing in an equity indexed annuity is a very wise thing to do. Next you need to get quotes from different annuity companies to help you choose which one has the best product to meet your needs.

Free online annuity tools exist to help you compare and contrast the different equity indexed annuities available on the market. The offerings from the various insurance companies differ; therefore, you should carefully compare things like fees and the company itself prior to taking out such a necessarily long-term investment.

You can learn about the economic strength and the future financial outlook of any company selling annuities by contacting one of the independent insurance ratings firms like Standard & Poor’s or A.M. Best. These companies exist to evaluate and give letter grades to insurers worldwide, so that companies that are in dire straits financially are exposed and consumers have a resource with which to investigate insurance companies prior to investing.

Another aspect of insurers that should be checked is how they treat their customers. Contact your state department of insurance to learn about complaints made about any company you are considering buying an annuity from. You can also do an online search to see how other consumers rate such companies and what their actual experiences have been like.

Start today gathering all the information you need before you invest in an equity indexed annuity, by putting the online annuity quotes tool to work for you now!