Indexed annuities are designed specifically to create the possibility of higher interest earnings than traditional fixed rate products and to protect premium (sometimes called principal) from loss due to market downturns, all the while creating a reliable, guaranteed lifetime income.
These products provide the opportunity for increased growth potential through use of index accounts that credit market-linked interest based upon the performance of specific stock market indexes – without the risk of investing directly in the market. Because indexed annuities are backed by the issuing carrier, they guarantee your account won’t earn less than zero percent due to poor market performance.
As Jack Marrion has stated on Indexannuity.org, “Both principal and credited interest are protected from index declines, so the worst thing that could happen is the stock market drops for years and you still get back your principal plus a little interest. The index annuity is as safe as the insurance company issuing the annuity. No index annuity owner has ever lost money because the insurance company failed.”
Before you purchase an indexed annuity, read the contract and make sure you understand it and specifically the term (surrender charge period) during which surrender charges may apply should you need to take a withdrawal. Generally speaking, as long as you follow the terms set forth by your carrier, the safety of your premium in an indexed annuity and potential lifetime income is guaranteed.