Fixed Index Annuity

Fixed Index Annuity (FIA)

Client Profile: Conservative

Protection Level: High

Funding Source: Fixed Income

One advantage of utilizing a fixed index annuity (FIA) is to leverage the scale of insurance carriers to deliver strong pricing in a packaged product, making it comparatively easy to implement. This popular annuity type provides market upside with guaranteed downside market protection from the carrier.

Assets are allocated into indices that are designed to replicate market performance. These indices are typically accompanied with cap rates, spreads, or participation rates.

Many FIAs offer optional guaranteed lifetime income riders for an additional cost. While guaranteed income options from fixed index annuities are generally a bit lower than can be achieved through single premium immediate annuities (SPIAs), they generally have greater liquidity and flexibility.

Consider a FIA when your client needs:

Principal Protection: With the principal protection from market risk, a FIA should be considered for clients nearing or in retirement to help mitigate sequence of returns risk.

Fixed Income: FIAs can be used as a fixed income allocation for a portion of client portfolios. They provide sequence-of-returns protection for those entering or in retirement, with a higher rate of return than current bond yields.

Guaranteed Lifetime Income: Through the use of a living benefit, a FIA can be used to generate guaranteed lifetime income with allocation flexibility and liquidity (beyond the surrender period).

Disclosures:

FIAs may be subject to surrender charges, market value adjustment, and taxation for early withdrawals.

Fixed index annuities are contracts purchased from a life insurance company that are designed for long-term retirement goals.

While the interest rate credited to an indexed account is linked to the performance of an underlying index, premium payments made to a fixed index annuity are never directly invested in the stock market.

All guarantees are based on the financial strength and claims-paying ability of the issuing insurance company.

The purchase of an annuity within a retirement plan that already provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefits. An annuity should be used to fund a qualified plan based upon the annuity’s features other than tax deferral. All annuity features, risks, limitations, and costs should be considered prior to recommending the purchase of an annuity within a tax-qualified retirement plan.