An annuity is a type of savings plan that can be used to accumulate assets on a tax-deferred basis for retirement and/or to convert retirement assets into a stream of income.

While an annuity is an insurance contract and benefits from all the guarantees and security that an insurance policy provides, an annuity is, in reality, the opposite of traditional life insurance:

  • Life insurance provides financial protection against the risk of dying too soon
  • An annuity provides financial protection against the risk of living too long and running out of income during retirement years

There are two basic types of annuities:

  1. Deferred Annuities. A deferred annuity has two distinct phases: the accumulation phase and the income phase. During the accumulation phase, a client will contribute premiums to the annuity, where their savings accumulates on a tax deferred basis until needed for income purposes.
  2. Immediate Income Annuities. An immediate income annuity is purchased with a single premium and income payments begin immediately or shortly after the premium is paid.


In the past, the choices were either (1) receive the guarantee of principle and a minimum amount of interest, or (2) link to the market with the potential of higher returns, but also accept the downside risk to the principal.

A Fixed Indexed Annuity provides the best of both worlds. Guarantee of principal and the potential of market-linked growth with no risk of loss of principal due to market downturns.


A fixed index annuity (also referred to as an equity indexed annuity) combines the safety of a traditional fixed annuity – a guarantee of principal, with the potential for market-linked interest crediting. Unlike most securities or mutual funds where the account balance can fluctuate due to market performance, the principal deposited into a fixed indexed annuity is never at risk due to market downturns. A contract owner of a fixed indexed annuity participates in market-indexed interest without market-type loss.


All annuity values accumulate on a tax deferred basis until withdrawn. Therefore, money can grow faster because interest is earned on dollars that would otherwise be paid as taxes. The principal earns interest and the interest compounds allowing faster accumulation over a shorter period of time, thereby earning a greater return on the principal deposited.

Fixed indexed  annuity contracts generally allow for some form of penalty-free withdrawals, up to 10% of the full accumulation value, once each contract year after the first contract anniversary.


Fixed indexed annuities can provide a guaranteed income stream for life. The client has the ability to choose from several different annuity payment options. With non-qualified plans, a portion of each annuity payment represents a return of premium that is not taxed, which reduces the income tax on any annuity payments.


While the indexed annuity concept offers many features of a traditional fixed annuity, it has a rather unique feature that allows a potential of stock market-linked interest credits without the potential of any market-type loss. In contrast to a securities-type product such as a variable annuity (typically little more than a mutual fund) or an actual mutual fund where the investor bears the market risk, the fixed indexed annuity concept protects the contract owner from any risk of loss of principal due to market downturns.


Earnings on a fixed indexed annuity are based on stock market-like performance from certain indices. But what exactly is indexing? Indexing is simply an investment strategy that follows the performance of select securities, such as the Standard & Poor’s 500® Index. The S&P 500® is a collection of 500 select industry leaders and thus a benchmark for U.S. Stock Market performance. A fixed index annuity is linked to the performance of this type of market index, without the risk of directly participating in stock or equity investments. With indexing, an annuity owner can participate in a diversified passive investment strategy.


Fixed indexed annuities have the potential for market-linked interest without exposure to the market risk. Contract owners enjoy the guarantees and safety of their principal even while being linked to market growth. However, they should not expect fixed index annuities to mirror the exact performance of any stock market index. Since a fixed indexed annuity uses a passive investment strategy, it will not mirror the exact return of the stock market index. The fixed indexed annuity is a powerful financial tool designed to meet a client’s long-term retirement needs.


With 10,000 baby-boomers now turning 65 each day in this country, and with current market conditions eroding the savings and confidence of many in this huge consumer group, annuities provide the answer to many of their retirement needs. This market has just begun to show explosive growth, and the opportunity our leads provide you as an agent to enter into the homes of so many that are looking for exactly what an annuity provides, opens the door to many additional sales that can put tens of thousands of dollars into your pocket each year.