Equity Index Annuities

Indexed annuities, also known as equity indexed annuities, are contracts between an individual and an insurance company. These types of annuities earn their return based upon an external market index such as the S&P 500 or the DJIA (Dow Jones Industrial Average).

Similar to other types of annuities, an indexed annuity will provide tax-deferred growth of the funds that are inside of the account. This means that there is no tax due on the gain of the funds until the time they are withdrawn.

In addition, an indexed annuity can also provide a guaranteed stream of income to its holder at retirement, as well as certain other riders and income payment options that essentially allow its owner to “customize” the annuity to more closely fit their specific needs.

How Indexed Annuities Differ from Other Types of Annuities

There are several ways in which an indexed annuity differs from other types of annuities. One of the most distinguishing of these is the fact that an indexed annuity holder can lock in market gains while at the same time being protected from market downturns and keep their principal safe from loss.

In other words, even though there is the potential for market linked growth, there is no exposure to market risk. Therefore, these annuities can essentially be thought of as offering “the best of both worlds”.

Indexed annuities may also have varying methods of crediting interest.

In addition, in return for principal protection, the holder of an indexed annuity may not receive the full amount of the gain on an underlying index during an upward moving period. This is because an equity indexed annuity may possess a cap and / or a participation rate that will limit the amount of interest that the annuity holder will receive.


It is also important to note that while an indexed annuity has its return tied to the performance of an underlying index, these annuity holders’ funds are not invested directly in the market.

Advantages of an Indexed Annuity

There are many benefits to owning an equity indexed annuity. These can include:

  • Safety of principal
  • Market linked growth
  • Tax-deferred gains
  • Potential for higher returns than a regular fixed annuity
  • Ability to make unlimited contributions
  • Ability to bypass probate
  • Guaranteed income for life

Who Should Consider This Type Of Annuity?

While an index annuity may not be the ideal option for everyone, there are some individuals who may want to consider this type of annuity as a part of their overall financial planning for retirement. For example, an index annuity may be a good option for those who:

  • Have contributed the maximum amount to qualified retirement plans and / or IRA accounts, but still wish to contribute more
  • Are seeking tax-advantaged growth
  • Wish to attain market-related growth, yet are concerned with loss of principal
  • Are looking for a viable, higher return alternative to CDs, bonds, and treasuries
  • Are seeking a source of guaranteed lifetime income.

When looking for an equity indexed annuity, an independent insurance agent like us can be your best source of information. This is because you will have access to options from multiple insurance companies, which can provide you with a wide variety of indexed annuity rates, benefits, and options to choose from.

If you want to learn more about index annuities and see how this source of tax-advantaged retirement savings and guaranteed lifetime income could fit into your overall plan, give us a call. We can help you to find the best indexed annuity for your specific financial goals.