Indexed Annuities

Equity Indexed Annuities

Do you ever come across an investment that sounds too good to be true? We see these ads in the paper all the time guaranteeing above-average returns, but there’s usually a catch. If you or someone you know is thinking of investing in an indexed annuity, please convince them to read the contract thoroughly.

Indexed Annuities have multiple moving parts and can be very confusing, not only to the investor but also to the broker selling the product. I have seen instances where the representative of the insurance company doesn’t even understand how their own product works. Often times these complex products are sold inappropriately, so much so that the CFO for the State of Florida issued a consumer alert back in September of 2007. “As with any investment product, it is important for consumers to read and understand any document before signing and getting all agreements in writing,” said CFO Sink, who oversees the department, “Our aim in providing this link is to help consumers ask the right questions to protect themselves and invest their money in a way that best serves their needs.” The link mentioned is and I encourage everyone to use this website and type indexed annuities in the search engine once you are on the site. There are multiple warnings concerning this product.

Equity-Indexed annuities will provide returns based on a stock index performance for that given year; however, they have based also on terms set forth in the contract. For instance, these products usually subtract a fee from the index’s gain, which is known as the spread, margin, or administrative fee. For example, let’s say the index rose by 8% and the fee was 3%; you would be credited at the end of the year with a 5% rate of return. Typically, these products will have a set formula to calculate the return of the index as well by using a starting and ending point of the index and taking a monthly average. The other downfall is that while you are tied to that index, you are not necessarily entitled to the dividends that the index pays out through the year.

Suitability is also an issue with this product. Like traditional annuities, equity-indexed annuities have surrender charges. These charges can be as high as 25% and last as long as 20 years. Some policies measure the surrender charge period from the date the policy is issued, others apply the surrender charge period to each premium paid to the policy. Can you imagine a 70-year-old person being sold an investment with a 20 year surrender charge period? It happens, and I have seen it happen.

We see this on the news all the time. Do your homework and due diligence before making any investment. Check out the broker selling the product. You can do this free at

I have over 18 years of experience in the financial services industry and have supervised brokers from the management level during that time. I have held the series 7, 8,24,52,63, and 65 securities licenses and also have my Health, Life, and Variable annuities licenses along with a Certification in Financial Planning. If you have any questions on this topic call me at 772 223-9686. Fogel Capital is a federally recognized Registered Investment Advisory firm. All of the opinions stated within this article are that of the author, and should not be considered advice for your individual portfolio. As always, please consult a qualified financial professional.

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