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What are Fixed Index Annuities?

If you’re looking for safer financial instruments than the stock market gamble, a fixed index annuity may be of interest. Fixed index annuities allow you to keep hard-earned money protected while enjoying tax-deferred, equity index-linked asset growth potential.

Via a fixed index annuity, you’ll have the ability to take advantage of index performance-tied growth. You can retain your money growth, avoid risking assets in volatile investments like stocks, and prepare for a financially confident future.

What is a Fixed Index Annuity?

Like other annuities, a fixed index annuity is an insurance contract you own. It’s a fixed annuity which earns interest or provides benefits linked to the performance of an equity index. Examples of indices are the S&P 500®, the NASDAQ®, or the Dow Jones Industrial®. To be clear, fixed index annuities do not directly participate in any financial markets.

The value of the index may be tied to a stock or another index. When the index records positive change, interest is credited to your annuity’s value. This interest rate is calculated using a formula based on equity index changes. It also comes with a minimum guaranteed interest rate so your principal stays protected in the event of negative index changes.

How Does a Fixed Index Annuity Work?

A fixed index annuity is different from other fixed annuity contracts because of the way it credits interest to your annuity’s value. Some fixed annuities only credit interest calculated at a rate set in the contract. Fixed index annuities credit interest using a formula based on the equity index performance. The formula decides how the additional interest, if any, is calculated and credited; how much additional interest you get and when you get it depends on the features of your particular annuity.

The fixed index annuity, like other fixed annuities, also promises to pay a minimum interest rate. The rate that will be applied will not be less than this minimum guaranteed rate, even if the index-linked interest rate is lower. The value of your annuity also will not drop below a guaranteed minimum. The minimum guaranteed value is the minimum amount available at the end of the term.

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