Fixed Indexed Annuities Explained

Introduction to Fixed Indexed Annuities

In this section, the speaker introduces fixed indexed annuities and explains that they are not a security but rather a CD product. He also mentions that he has written a book on the topic which he will send for free.

What is a Fixed Index Annuity?

• A fixed index annuity (FIA) is a fixed annuity that was introduced in 1995 to compete with CD returns.

• FIAs are not market return products but rather CD return products.

• Currently, there are over 700 index option choices available for FIAs.

Upsides of Fixed Index Annuities

• FIAs are fully principal protected and gains earned with an indexed annuity are locked in permanently at the contract anniversary date.

• FIAs can be an efficient and cost-effective way to deliver an income rider guarantee for future income needs.

Downsides of Fixed Index Annuities

• FIAs do not provide market returns as they are regulated at the state level and considered fixed annuities.

• Renewal rates can change at the discretion of the annuity companies, making it important to understand how caps, spreads, and participation rates work.

• The sales pitch and presentation of indexed annuities can be misleading.

Selling Indexed Annuities

In this section, the speaker discusses how indexed annuities are sold and who is qualified to sell them.

Sales Qualifications

• To sell indexed annuities, one only needs a state life insurance license.

• The annuity companies cannot regulate how people sell their product, so it is important to be aware of the sales pitch and presentation.

Conclusion

• Indexed annuities can be a good product when people fully understand how they work.

Fixed Annuities vs. Fixed Index Annuities

In this section, the speaker explains the difference between fixed annuities and fixed index annuities.

Fixed Annuity Category

• All fixed indexed annuities are fixed annuities.

• The fixed annuity category includes multi-year guarantee annuities, immediate annuities, deferred income annuities, and qualified longevity annuity contracts.

Understanding Fixed Index Annuity

• A fixed index annuity is a contract issued by a life insurance company that offers principal protection but is not a market growth product or security.

• It is not too good to be true or a pie-in-the-sky product as it is often marketed.

Sales Pitch of Fixed Index Annuity

• Upfront bonuses are candy for the stupid; never buy an annuity for an upfront bonus.

• Market upside with no downside sounds good but these are CD type products that sound better than they actually are.

• Free long-term care is not true; long-term care is a health insurance product that should not be cashed in for an indexed annuity with confinement care rider.

Are Fixed Index Annuities Good Investments?

• The speaker does not consider them investments but rather contracts that offer contractual guarantees suitable for those looking for principal protection and CD type growth with future income possibilities through an attached income rider.