There are many components to fixed index annuity rates, and they have plenty of working parts that make the contracts seem complicated when they don’t need to be. Among the perceived complexities are the various rates that contribute to overall contract performance. A true professional takes a surgical approach to the analysis so let’s go piece by piece and when finished I think you’ll agree; fixed index annuities aren’t that complicated.
The Various Fixed Index Annuity Rates:
Declared Fixed Rate- Most index annuities offer the option for a simple fixed rate that is exactly like the rate offered in a plain old fixed annuity. Each contract will note the current declared rate, contractual minimum renewal rate or specify that the rate is guaranteed for the entire time period.
Participation Rate- This tells you the percentage of the associated market index that will be credited to the account when asset values are locked in.
Cap Rate- This indicates the maximum amount of interest that will be credited to the account when asset values are locked in.
** Pertaining to Cap and Participation rates, asset values typically lock-in annually but can do so in several other annual time periods as specified in the contract. This is called a contractual reset which can range from one to ten years.
Guaranteed Income Growth Rate- One of the more popular additions to fixed index annuities in recent years is the opportunity for guaranteed lifetime income regardless of account performance. With this option, the account value will grow only when the market does while the income benefit is guaranteed to increase at all times. This affords the contract owner of some level of certainty as to what level of retirement income to expect.
Death Benefit- Many fixed index annuity contracts offer an optional death benefit. With this the contract owner is guaranteed the greater of the account value or a guaranteed annual percentage increase at death.
Payout Rate- When the option for guaranteed lifetime income is elected, payments will be calculated based on the age of the contract owner and joint annuitant if applicable. Different payout rates will be available based on these factors an expressed as a percentage of the guaranteed income benefit or account value, whichever is greater.
Fixed Index Annuity Rates Summary:
This basically sums up the various rates that indicate the potential performance of a fixed index annuity. As there are several moving parts to this type of annuity product, all of the points above relate directly to certain contract provisions that require further explanation for proper knowledge before purchase. Feel free to Contact Us for help in selecting the right annuity for your unique situation.
Refer to additional information on this site for more detail on the inner-workings of fixed index annuity contracts. If you are considering the use of a fixed index annuity for retirement income planning be sure to seek the advice of an unbiased professional. The Annuity Report is a great place to start… sign up below for more info on annuities.