subject: Will Fixed Annuities Keep Your Money Safe? [print this page] Just how safe are fixed annuities? One type, called equity or indexed annuities, gets marketed a lot by life insurance companies these days. These products have been marketed as safe ways to save and grow money. Fixed equity indexed annuities have also been promoted as well paying, especially when compared to other, commonly known safe savings products like certificates of deposits and savings accounts. On the surface, there is a lot to like about many popular annuity contracts.
For example, you may see an offer for a fixed equity indexed annuity. Indexed annuties tie their growth to some index of the marketplace. The S&P 500 is a popular one. When the index rises, the account makes more money. Of course, this would be true of any investment that was tied to the market. The real attraction is a guaranteed minimum return, usually two or three percent, that the account owner will get even if the market falls. Fixed annuities can give some savers a good place to grow money, even if the market goes sour.
This can provide many savers with a lot of benefits. However, you really need to dig into any annuity contract before you make a decision.
Pay attention to participation rates and market caps in your contract. These limit your actual growth when the market rises. For some people, this is not a big price to pay for protection during downswings.
Also make sure you pay attention to the surrender terms. Most of the annuity contracts will have a fairly long surrender period. Typically, you will have to give up a large penalty if you take your money out before this term is up. You should not consider these products as short term investments.
Just how safe are these annuity investments? Actually, there could be two answers to that question.
The first answer is, of course, is that they are as safe as the life insurance company you choose to deal with. Before you do anything, you should check out the financial stability of any insurer who offers you an annuity contract.
Secondly, some insurers may participate in a state regulated guarantee fund. Even when the market declines, the owner should earn the guaranteed minimum rate. The protection may be limited though. You have to find out what the rules are in your own state. You should also know that some annuity sellers will not participate in a guarantee fund.
Most financial professionals will tell you that these products are safe. Life insurance companies rarely struggle to pay their bills, and many are backed up by state regulations. However, today's investor is wise to understand all the risks before making a decisio
