Annuity Immediate Quote

Maybe you’ve recently maxed-out your 401(k) and your IRA, and you’re still looking for ways to save for retirement and defer taxes. If so, a relatively new tool on the market may help you meet your financial goals. It’s called an Equity Indexed Annuity (EIA) and it’s gaining in popularity.

Equity indexed annuities take advantage of the security of annuities and potential market gains. They’ve gained media attention as an insurance product that can profit from gains in market indexes. According to USA Today, currently 41 companies offer a total of 131 equity indexed annuities. The combination of the security of an annuity and the potential growth of the stock market has led to an increase in the amount of annuities purchased and also the amount of scrutiny given EIAs by the media and regulatory groups

Like a regular fixed annuity, you put money into an annuity in return for interest and a steady stream of income after you’ve retired. Income guarantees are based on the claims-paying ability of the insurance company. The difference is that with an equity-indexed annuity you have the potential to earn more future savings depending on the performance of the index to which it’s tied. Many EIAs are based on the Standard & Poor’s 500 index.

One possible downside is that the insurance company with whom you contracted for the annuity can set limits on the amount of market gain you actually receive. While you still have an opportunity for adequate growth, it may not always be at the same level as the index.

Insurance companies can limit your potential gains in several ways. For example, they can put a cap on your growth. If they assign a 10% cap, and the market increases 20%, you get only 10% of the gain. They can also give you only a percentage share of the index performance. For example, if they set the rate at 70% of index performance, and a particular index rose 10%, you would earn 7%. Finally, they can implement margins or spreads. If your margin was set at 4% and the market rose 10%, your annuity would rise only 6%.

How and when interest is credited to your EIA is an essential component as well. Some EIAs calculate interest by comparing your account value at the beginning of the year to its value at yearend. Assuming a gain, the difference is added to your account using the guidelines above. Others take the value of your EIA then add the value gained after the entire term of the EIA which could be many years.

One of the biggest advantages of EIAs lies in taxes. Future income and earnings in an annuity generally offer tax-deferred growth. This is especially helpful if you expect to be in a lower tax-bracket during retirement.

Keep in mind that EIAs are primarily a retirement savings vehicle and usually have a penalty for early withdrawal. There is an additional 10% tax penalty if you withdraw before age 59 1/2. However, many annuities have a provision that allows you to withdraw 10% of your funds without paying a penalty. Withdrawals will reduce the amount paid to beneficiaries at the time of death.

As with most investments, there is always risk, and you should consult carefully with a financial professional before you choose to invest.. As an alternative to traditional retirement savings, EIA’s may be a viable option to help you plan for retirement.

Although equity indexed annuities have been around for a number of years, equity indexed universal life (EIUL) insurance is a relative newcomer to the life insurance marketplace. EIUL is a spin on universal life (UL) insurance, a popular policy type because you can increase or decrease your death benefit as your needs change and your premiums can be adjusted accordingly. UL policies also build a cash value against which you could borrow or even use to pay your premiums.

The equity indexed concept is relatively simple: the amount of interest credited to your policy’s cash value is tied to the performance of a particular index (the S&P 500 is one of the most popular), so that in years where the index performs well your interest crediting rate will rise, and in years where the index performs poorly, your interest crediting rate will fall.

Most policies guarantee that your interest crediting rate will never fall below zero so that you won’t lose money (you just won’t make it). They also have a cap as to how high a crediting rate they will pass on to you. This range of possible rates is often described as offering “upside potential with downside protection.”

How It Works

Typically, the big choice facing life insurance buyers is whether to go with a “safe” universal life policy that offers a minimum guaranteed rate but limited potential for cash accumulation or to go with a more “risky” variable life policy that offers greater potential for earnings but no protection against losses in the market.

EIUL insurance is an attempt to fill the gap between these two approaches. EIUL is universal life insurance in which the cash value is linked to a certain index. If the index is higher at the end of the year, your cash value may go up. If the index stays flat or goes down, your cash value earns the minimum guaranteed interest rate (say, 2 percent). You should note, however, that when your index goes up it doesn’t mean that your cash value increase will reflect the full index increase, due to fees, and dividends and capital gains aren’t included in the cash value’s calculation.

But are these new products the best of both worlds? Let’s take a look at both sides of the coin.

The Pros and Cons

One advantage of EIUL is the potential for higher interest crediting rates than a traditional universal policy. Another advantage is that it offers greater protection from market downturns than a variable life insurance policy.

Stephan Mitchell, product & competition analyst for Pacific Life Insurance Co., based in Newport Beach, Calif., points out that while these products are not a cure-all, they can offer “an attractive middle ground for buyers who saw the market downturn of 2001-2002 and are looking for some guarantees.” These products can offer some peace of mind to buyers looking for a mix of guarantees and some potential for cash accumulation.

However, there can be disadvantages to having an equity indexed product. The chief disadvantage of an equity indexed product is that it comes equipped with slightly higher risk than a traditional universal policy. Also, the cap rate the maximum rate you may earn limits the upside potential compared to a variable policy and may be changed periodically by the insurance company.

Steven Weisbart, economist for the Insurance Information Institute, also cautions that “the crediting rate system in these products is probably not familiar to would-be buyers and agents.” Since there are so many “moving parts” to one of these products, it is sometimes difficult to figure out what the product actually does at first.

EIUL insurance policies do fill a void between the traditional bookends of the modern insurance marketplace, but it would be an overstatement to term them the best of both worlds. EIUL has neither the appealing guaranteed rates of universal life nor the true market participation of variable life insurance. However, EIUL does offer an attractive third option for buyers and may be ideal for folks whose needs have been overlooked by existing insurance choices.

Is It Right For Me?

Equity indexed universal life insurance may be right for you if you fit the following criteria: The potential cash accumulation of variable life insurance is enticing to you but seems too risky and the guarantees of universal life are comforting to you but the potential for cash value accumulation seems too low.

If these conditions describe you, then an equity indexed universal life insurance policy may be an avenue for you to explore. But before deciding on a particular product, be sure to research the insurance company behind it.

After all, the amount of interest you are credited is in the hands of the company and whatever guarantees the product offers are only as solid as the insurer itself. Just as with other types of insurance, always check into the insurer’s ratings (A.M. Best, Moody’s, Standard & Poor’s, etc.) to get a better picture of how strong the company is financially.

Visit Insure.com for a free universal life insurance quote.

A fixed indexed annuity (FIA) is the product of choice for top selling annuity agents who are tired of seeing their clients lose money in low interest rate CDs. A fixed indexed annuity is a hybrid fixed product that is fast becoming the new “safe home” for billions of former CD, stock market and mutual fund dollars. And with good reason.

HOW IT WORKS

A FIA provides a safety net of usually 1-3% interest compounded annually. But this is just the minimum guarantee through the contract term. The upside earning potential is much higher.

As the name implies, the fixed indexed annuity is tied to an equity index such as the Standard & Poor’s 500. The S&P 500 is the benchmark for U.S. equity markets, representing the general health of the overall stock market. As the market goes up your client’s earnings go up because they participate in a percentage of the increase. But (and this very important) when the stock market comes back down again as it always does, your clients don’t lose any money.

WHAT WAS THAT AGAIN?

This bears repeating. When the stock market goes up, earnings go up with it subject to a cap. But when the market comes back down again as it always does, the policy does not lose any money. Earnings are locked in at each annual anniversary index point. FIA owners earn 2 or 3 times the guaranteed interest rate when the stock market goes up, and when the stock market comes back down again they get to keep all profits. Upside earnings without the downside risk. How cool is that?

TAX DEFERRED GROWTH

What’s more, your client’s earnings grow tax deferred as long as they stay in the annuity. This means they earn even more money on the portion they don’t have to send Uncle Sam. Unlike a CD, there is no Form 1099 to add to income tax returns each year. Why pay taxes on income you don’t spend?

Seniors citizens are especially fond of Fixed Indexed Annuities since deferred interest is not counted as provisional income and can reduce or eliminate taxation of Social Security benefits. FIAs are also becoming the favorite funding vehicle in small business retirement plans like the 401(k) and SEP-IRA.

WHAT TO DO?

Whether you sell to retirees or future retirees, you owe it to yourself to learn why millions of people are moving billions (actually, trillions) of dollars into fixed indexed annuities. They’re the sensible alternative that can make you very large commissions.