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Frequently asked questions about fixed indexed annuities

Fixed indexed annuities are a complicated financial product that may be structured in many different ways. Before purchasing, it is important that you understand exactly what you are buying. All terms are specified in the annuity contract. When you are dealing directly with an independent agent who sells fixed indexed annuities, you should ask questions and make sure that the fixed indexed annuity you are considering has been explained to your complete satisfaction. Following are some of the common questions you might have.
 

What is a fixed indexed annuity?

A fixed indexed annuity (FIA) is a contract with an insurance company that provides the owner with protection of premium due to market downturns and a minimum interest rate guarantee. In addition, FIAs provide the potential for higher excess interest rates over the long term by using crediting methods linked to an index (usually the S&P 500).
 

How is your interest rate determined?

Insurance companies use a combination of factors that will determine the interest rate credited to your FIA contract in any given year. While you are always guaranteed a minimum interest rate, the indexed-linked interest credited to the annuity will vary from year-to-year. Among those factors that can affect the interest credited of to the annuity are the participation rate, interest caps, and the margin or spread, sometimes called the administrative fees. The index is only a factor that in part determines the interest to be credited, an indexed annuity does not participate directly in the stock market or in an index's gains or returns. Due to the cost of the downside risk protection for the insurer, in some years in which the index does not perform well the interest credited on your FIA could be less than what would have been credited with a traditional fixed annuity.
 

What is the participation rate?

When the index has a positive annual return, you benefit by sharing in a percentage of that return. The percentage is called the participation rate and it can vary depending on the terms in your annuity contract. In return for the insurance company assuming all risk in a down market, you give up some of the gains in an up market.
 

What is an interest cap?

Think of the cap as a ceiling on the interest that can be credited to your annuity in any given year. As the guarantee rate is the minimum interest your annuity can be credited, the cap is the maximum your annuity can be credited.  As an example, if your cap is 10 percent and the S&P 500 Index goes up 15 percent, you will only receive 10 percent interest credited to your annuity.
 

What are the margins/spreads/fees?

Some FIAs include a margin, spread, or administrative fee, which is a percentage that the insurance company charges first before crediting interest to your annuity each year.  If the margin is 2 percent and the index increases by 10 percent in a given year, the insurance company will keep 2 percent and credit 8 percent to your annuity. It is important to note that in years were there is no positive increase in the index, there is no margin charged.


Do you have to pay taxes on fixed-indexed annuities?

Fixed indexed annuities are tax-deferred insurance contracts. Interest grows tax deferred and may be subject to tax liability only upon withdrawal. As is the case with other long-term, tax-deferred investments, if you withdraw funds prior to age 59.5, you are subject to a 10 percent penalty in addition to any tax liabilities.


What are surrender charges?

If you want to take money out of your FIA before the end of the surrender period (typically lasting five to 10 years), you may be forced to pay a penalty or surrender charge. Most annuity contracts allow for annual 10 percent free withdrawals during the surrender period, so amounts in excess of that would carry a surrender charge. It is important to review the surrender charge details and free withdrawal features in the contract and discuss them with your agent prior to purchasing the annuity.
 

Can you guarantee income for life?

Adding a lifetime income rider to your fixed indexed annuity can provide a guaranteed stream of income for the rest of your life. There is a cost to add the lifetime income rider to your FIA, usually .5 percent to 1 percent, but if creating a guaranteed lifetime income for your retirement years is your goal, you may find a lifetime income rider is right for you.
 

Who is a good candidate for fixed indexed annuities?

Individuals who are retired or nearing retirement may benefit by purchasing an FIA. If you are interested in the protection of your premium from market downturns while having the potential for higher index-linked interest crediting, a fixed indexed annuity may be a good option.

 

Disclaimer

Thank you for your interest in Crown Atlantic Insurance LLC. In order for us to assist you with your questions related to annuities we’ll need to contact you by phone.

If you desire, we can also arrange a face-to-face meeting with a licensed independent insurance professional in your vicinity. Our Representative will call you at the number you provide during daytime hours (M-F 9AM to 5PM CST) over the next 2 days.

By completing the sign up and providing us with the telephone number you have signified your written consent to receive calls and text messages about annuity and insurance products; and your submission of this information constitutes your electronic signature signifying your written consent.

Accept Decline

Disclaimer

Thank you for your interest in Crown Atlantic Insurance LLC. In order for us to assist you with your questions related to annuities we’ll need to contact you by phone.

If you desire, we can also arrange a face-to-face meeting with a licensed independent insurance professional in your vicinity. Our Representative will call you at the number you provide during daytime hours (M-F 9AM to 5PM CST) over the next 2 days.

By completing the sign up and providing us with the telephone number you have signified your written consent to receive calls and text messages about annuity and insurance products; and your submission of this information constitutes your electronic signature signifying your written consent.

Accept Decline

Disclaimer

Thank you for your interest in Crown Atlantic Insurance LLC. In order for us to assist you with your questions related to insurance we’ll need to contact you by phone.

By completing the sign up and providing us with the telephone number you have signified your written consent to receive calls about annuities and/or insurance products; and your submission of this information constitutes your electronic signature signifying your written consent.

Accept Decline

Disclaimer

Thank you for your interest in Crown Atlantic Insurance LLC. In order for us to assist you with your questions related to insurance we’ll need to contact you by phone.

By completing the sign up and providing us with the telephone number you have signified your written consent to receive calls about annuities and/or insurance products; and your submission of this information constitutes your electronic signature signifying your written consent.

Accept Decline