Indexed Annuities Offer Large Profits and Commissions for Insurance Companies, but Questions Remain as to Whether these Products are Good for Clients
Since the first Equity-Indexed Annuities appeared in the product lines of insurance companies in the mid 1990’s, significant confusion has abounded. These annuities can be classified somewhere in the void left between fixed annuities and variable annuities. In this regard, many individual investors are naturally attracted to the perceived benefit derived by Equity-Indexed Annuities. Benefits are described as including, protection from market downturns due to the fixed interest rate portion of the annuity, and the ability to reap the benefits of market upturns due to the variable interest rate portion of the annuity. The concept seems simple, but the simplicity surrounding Equity-Indexed Annuities ends abruptly.
What do I Need to Know?
What do I Need to Know?
Whether the individual investor is considering purchasing an Equity-Indexed Annuity, or already has, it is vital to be aware of the following complexities make the product as enigmatic as the now famous Collateralized Debt Obligation which is at least partially responsible for the financial meltdown of 2009-2011:
So Who Is Looking Out for Me?
Equity-Indexed Annuities are tied to equity markets. This opens the door to both state and federal securities regulators to become involved in the regulation of Equity-Indexed Annuities.
The Illinois Department of Securities has already taken action in certain Equity-Indexed Annuity cases. While all insurance products are regulated at the state level, securities regulations are often be more stringent than insurance regulations. This added level of governmental scrutiny does provide some protection to individual investors, but when purchasing a complex product such as an Equity-Indexed Annuity, there is no substitute for research and due diligence on the part of the individual investor. The Financial Industry Regulatory Authority, known as FINRA, also has literature available outlining in great detail the complexities of Equity-Indexed Annuities.
What Should I Do?
Educate yourself. There is a tremendous amount of information on Equity-Indexed Annuities available on the internet. Ask questions, constantly, to you insurance broker or advisor. This is the only way to fully understand any insurance product; not to mention one as complex as Equity-Indexed Annuities. Questions should include:
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