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An index annuity is such a type of annuity option that is specifically designed for helping policies holders in saving their hard earned money for their post retirement life. An index annuity can also be referred to as such an annuity policy that earns its interest in an indexed form complying with inflation, interest rates, stock indexing. Whatever be the index, the bonds help in securing annuity’s principal amount.

The following are the index types that offer various saving and premium options as per the needs of the choice, needs and preference of the annuity buyer -

Inflation Indexed Annuity

The inflation annuity is adjusted according to the rate of inflation. They are also known to be single-payment immediate annuity plans. This index annuity types assures inflow of income for specific period of time or for entire life span of the insurer. The payments made every year are adjusted according to the rate of inflation. Insurer can also designate the inflation percentage right at the time of entering into annuity contract.

Two Tiered Annuities

This is one of those annuity types that offer guaranteed minimum growth. These annuities have two kinds of account balance. An actual account balance and a ‘phantom’ account balance. The second account is a virtual account and depicts higher account balance in comparison to the actual account balance. The purpose of this virtual account is to give an idea to the annuity buyer that how much payment will be at disposal if the insurer wants to derive monthly payments.

Equity Indexed Annuities

The equity indexed annuities is one of such annuity types that has its credit-interest based over the tentative movement of the stock index. The company buys the bonds with the premium of the annuity and uses its interest earnings. Alternatively, the insurance company utilizes some portion of the premium for direct purchase of index-call options. Whenever the stock index will rise the index-call options will also escalate. This situation consequently creates the advantages of the stock market that gets added into annuity holder’s account. Any losses met get ignored because the stocks and bonds render protection to the principal amount.

Let us now explore some of the prospective and consequences of equity indexed annuity that is also by the name of fixed indexed annuity.

The Prospective

ü Assurance of higher returns in comparison to a standard annuity

ü Guarantee of minimum money return despite stretched market condition

ü Easy participation in the stock-market without worrying over losses or gains

ü Preferable for those individuals who are not very close to their retirement

The Consequence

A distinct consequence of equity annuity, or fixed indexed annuity, is that it does not clearly defines or discusses the scenario with the potential insurer. They are also quite complex to understand. Some senior citizens or naïve consumers fall in the trap of sweet tongued sales executives who make them sign the contractual agreement without making them understand various aspects of the annuity plan. Another of its drawback is that it can block the buyer’s money up to 20 years, thus making it unapproachable in the times of need.

Thus, if you want to save money you can think of the index annuity types.

• Income Riders For Variable and Indexed Retirement Annuities