How Index Products Can Smooth Out the Ups and Downs of a Volatile Market

Although there are some investors who have no problem with the constant ups and downs of the stock market, there are many – especially those who are retired or getting close to it – who have a difficult time sleeping at night knowing that they could be just one slight “correction” away from changing their entire future lifestyle.

Over the past few years, the unpredictable investment roller coaster has seemed to be a particularly bumpy ride. But, because it’s never a good thing for investors to panic and make major decisions that are based on emotion, what can you do in order to help ensure that your funds are still safe, yet also allowing you the growth that you need to keep up with future inflation?

The Index Product Solution

Today, a fixed index annuity and / or index universal life insurance policy could provide you with the solution that you’ve been looking for. For example, a fixed index annuity pays interest based on the performance of an underlying market index such as the S&P 500, rather than having funds directly invested in the market itself. A participation rate will determine just how much of the index’s gain will be credited to the annuity.

Many index annuities will use a cap, or an upper limit, on the annuity’s interest crediting rate. However, the trade-off for this is the fact that these types of annuities will also offer principal protection, which eliminates the risk of losing money due to a market downturn. What this means is that the annuity owner will simply be credited with 0% – even if the market earns a negative during a given time period.

With index universal life insurance, the cash value component is credited in a similar manner. Here, the policy holder will have their funds linked to an index (or indexes), by which the money can grow based on market upturns. And, similar to a fixed index annuity, principal is also protected from downturns in the market.

In order to supplement retirement income in the future, the policy owner may take out a tax free loan from the cash value component. This can essentially provide him or her with a tax free retirement income from the policy.

The fixed index annuity and the IUL product will also provide you with additional advantages over taxable investments, too. For example, the funds that are within these accounts are allowed to grow on a tax-deferred basis. This means that there is no tax due on the gain until the time it is withdrawn. Because of this tax advantage, your funds could essentially grow and compound a great deal over time.

Also unlike a regular taxable investment like a stock or mutual fund, index products such as the fixed index annuity and index universal life insurance can allow for a beneficiary to receive death benefit funds in the event of the account holder’s passing.

Taking the Next Step

Although the market continues to remain volatile, your personal funds do not have to be. By taking steps to ensure that your portfolio is safe from market fluctuations, while at the same time still provided with the opportunity for growth, you can allow yourself the peace of mind in knowing that you are still moving forward with your retirement goals. Index products such as fixed index annuities and index universal life insurance can help you achieve these priorities – while also allowing you to sleep well at night.

The key advantages of adding these products to your overall portfolio can include:

• Growth during market upswings
• Protection of principal during market downturns
• Tax-deferral on gains
• Potential death benefit for a named beneficiary

It is important to note, though, that not all index annuity and insurance products are created alike. With that in mind, it is important to shop around in order to ensure that you have the product or products that are right for you.
We work with over 40 insurance carriers, and we can help you to narrow down the options that will work best in your specific situation. Contact us today for more details.


Index crediting method