Fixed Index Annuities (FIAs)

by Craig Moser on December 8, 2017

Fixed Index Annuities (FIAs) are a contract between you and an insurance company.  They may help you reach your long-term financial goals.  In exchange for your premium payment, the insurance company provides income.  Income begins immediately or at some time in the future.  FIAs also offer the potential for indexed interest based on changes in select indices. ¹


The Name “Fixed Index Annuity”

Fixed:        The insurance company guarantees a minimum rate of return on the contract.

 Index:       Unlike traditional fixed annuities, fixed index annuities allows you to take advantage of market upside.  Specifically, interest credits based on changes in select indices, such as the S&P 500 or the Dow Jones Industrial Average.

Annuity:    An annuity is a contract between you and an insurance company.  In exchange for paying an initial premium, the insurance company offers you regular income payments, either starting now, or down the road.


The Players

Insurance Company issues the annuity and is responsible for backing its guarantees.

Annuitant:  is the person whose age and life expectancy determine payment amounts.  The annuitant and owner are usually the same person, but not always.

Contract Owner:   makes decisions regarding the annuity.  The contract owner may be one or two people, or even a trust.

Beneficiary:  receives the death benefit of the annuity.  Without a beneficiary, the annuity may be subject to probate.  However, with a beneficiary named, proceeds pass without probate.


How They Work

Part One: Accumulation

As soon as you purchase an annuity, it begins gaining interest from the fixed rate, or based on changes in selected indices.  This interest accumulates tax-deferred, which can help your assets grow more quickly.  In addition, some contracts may include a Lifetime Income Benefit Rider for an additional fee.  This rider determines how you receive payments during the Distribution Phase.  Features like caps, spreads and/or participation rates can limit interest crediting.

Part Two: Distribution

When you decide it’s time to receive income payments, the distribution phase begins.  You can take payments on a set schedule, which can last a lifetime.  Alternatively, if you purchased an income rider, you can take income withdrawals as an alternative to annuitization.  However, the income benefit is never available as a lump sum or cash surrender value.²  Whatever method you choose, fixed index annuities can help you feel more confident about your income in retirement.

Annuities meet long-term needs and are subject to surrender charges.  Surrender charges or withdrawal penalties may result in a loss of credited interest and a partial loss of premium.  Distributions are subject to ordinary income tax, and, if taken prior to 59½, a 10% federal penalty.


  1. Fixed Index Annuities are not a direct investment in the stock market. They are long-term insurance products, guaranteed by the issuing company.  FIAs offer a potential for interest, based in part, on the performance of specific indices.  There isn’t a risk of premium loss resulting from market downturns or fluctuations.  They may not be appropriate for all clients.
  2. Although an external index may affect your contract values, the contract does not directly participate in any stock or investments. You are not buying bonds, shares of stock, or shares of an index fund.  It isn’t possible to invest directly in an index.  The market index value doesn’t include dividends paid.  These dividends aren’t reflected in the interest credited to your contract.  Indexed interest could be less than with a traditional product, and could be zero.


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