Why Uncapped Does Not Mean Unlimited

The insurance industry is constantly innovating to meet the individual financial goals of consumers or the public–and the latest addition to the fixed index annuity market is the “uncapped” Volatility Control Index Strategy. This crediting method is now offered on many fixed index annuities today and enables the consumer to take advantage of well-performing market indices without an index cap.  However, it is important to continue to ask the right questions when considering adding any annuity to your retirement plan.

An important point to keep in mind about these new product offerings is that “uncapped” does not mean “unlimited”.  A volatility controlled index shifts assets between a risk component and a risk-free component to reach the targeted volatility level.

Therefore, although an uncapped annuity strategy does not use index caps to limit the returns for consumers, there are still limits on the potential returns due to the volatility control mechanism itself.

The Indexed Annuity Leadership Council promotes the transparent marketing of products to consumers. IALC recommends marketing the product as a “volatility controlled indexed crediting method” versus an uncapped annuity, to ensure that consumers understand the product there are purchasing.

In the industry today, we are seeing the product being marketed as a low-risk, high-reward with unlimited potential for earnings while still being a safe vehicle for savings. The positioning of the product in this manner could set up unrealistic expectations for consumers.

Are you unsure which questions to ask prior to purchasing an annuity? Use the Smart Buyer Checklist. This list provides a question guide to use when purchasing annuities.


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