Misperception # 1: FIAs are too complex to understand
Reality: Understanding FIAs involves learning some basic terms because interest earnings are calculated in various ways.
- FIAs offer the ability to earn interest based on changes in an external index, such as the S&P 500, while offering protection for loss of principal. However, at no times is Your money invested directly in the market because they do not actually own any stocks, bonds, index funds, or other investments.
- When a person buys an FIA, the insurance company provides a guaranteed minimum value, and guarantees a minimum rate of interest.
- Insurance companies offer resources to ensure a full understanding of FIA's to help people make educated decisions.
- As with other fixed annuity products, FIA's offer additional benefits including tax deferral, a guaranteed minimum value, a death benefit, and the option for guaranteed lifetime income.
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Misperception #2: FIAs have high fees.
Reality: Like many financial products, FIAs carry some fees. The insurance company uses these fees to help support its guarantees and provide valuable benefits including:
- The potential for interest based on changes in an index. FIAs provide purchasers with the opportunity to benefit from a portion of market index increases without directly participating in the market.
- Protection form loss of principal if the market index declines
- A guaranteed minimum value, credited with interest at a guaranteed rate.
- Tax deferral. Taxed are not paid on interest earned on an FIA until the money is withdrawn.
- Lifetime income option. Like most other annuities, FIAs can be converted into a stream of guaranteed lifetime income.
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