Annuities are a form of contract sold by life insurance companies that guarantee a fixed or variable payment to an annuitant at some future date. All capital in the annuity has the potential to grow tax-deferred. Key considerations when buying an annuity are the financial soundness of the issuing company, the returns being paid, and the cost of the insurance provided for the guarantee.
Many of Mischler’s clients use fixed and variable annuities as an integral part of their investment strategies. There are several different types of annuities that can effectively provide very competitive returns, enhanced earnings, and protections against the “downside” of equity markets.
These are investment contracts sold by an insurance company that guarantees fixed payments, either for life or for a specified period, to an annuitant. In fixed annuities, the insurance company takes both the investment and mortality risks. An investment in a fixed annuity guarantees that the purchaser gets no less than the principal invested.
These are investment contracts sold by an insurance company whose value fluctuates with that of the underlying equity securities portfolio and may result in the possible loss of principal. Investors in variable annuities may allocate their monies to either the insurance companies’ general account or a separate account which holds the underlying investments options; and that it is the monies allocated to the separate account that is protected from the insurance company’s creditors in an insolvency situation.
Equity / Indexed Annuities
These are Long Term investment contracts sold by an insurance company whose value fluctuates with that of the underlying index of performance. Equity Indexed Annuities entail risks including possible loss of principal. EIAs are long-term investments, early redemption fees may entail significant surrender charges and early withdrawals may trigger a 10% federal tax penalty. These instruments are not classified as equity investments because their value is only indexed to an equity benchmark, not actually invested in equities.
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