Myth: "Index Annuities Sound Too Good To Be True"
It's a fair question. After all, we're taught that higher returns always require higher risk. So how can a financial product offer principal protection while still providing growth potential?
The answer lies in understanding how fixed indexed annuities are designed.
They're Not Magic—They're Insurance Products
A fixed indexed annuity (FIA) is not an investment in the stock market. When you purchase an FIA, your money is not directly invested in stocks, mutual funds, or the S&P 500.
Instead, your money becomes part of the insurance company's general account. The insurance company then uses a portion of its investment earnings to purchase options tied to a market index. Those options create the opportunity to credit interest based on index performance—without exposing your principal to direct market losses.
Annuities are not new....They just might be new to you.
Myth: "I won't have access to my money"
Most fixed indexed annuities have a surrender charge period, often ranging from 5 to 10 years, depending on the product.
This does not mean you cannot access your money.
It simply means that if you withdraw more than the amount allowed under the contract during the surrender period, a surrender charge may apply.
Think of it like a CD at a bank.
If you cash in a CD before it matures, you may pay an early withdrawal penalty. That doesn't mean the bank owns your money—it simply means you agreed to certain terms in exchange for the benefits the product provides.
Myth: "When I die, the Company Keeps All My Money"
One of the biggest misconceptions about annuities is the belief that if you pass away, the insurance company simply keeps your money.
Fortunately, that is not how modern annuities work.
You Control Who Receives Your Money
When you open a fixed indexed annuity, one of the first things you'll do is name one or more beneficiaries.
Those beneficiaries can include:
- Your spouse
- Your children
- Grandchildren
- A trust
- A charity
- Anyone else you choose
Upon your death, the remaining value of your annuity is paid to your named beneficiaries.
In most cases, those assets pass directly to your beneficiaries without going through probate, making the transfer faster and more private than many other assets.