What Type of Annuity Do I Own (or Am I Considering)?
Why this is important: Each of the three primary types of annuities has differing risks and benefits. Being aware of these factors can help you decide which annuity type, if any, is right for you.
Typically guarantee a fixed or minimum rate of return over a set time period, similar to a bank Certificate of Deposit. Though fixed annuities generally don’t suffer losses due to their guarantees, other, less restrictive investments may provide similar returns.
Equity-Indexed (Index Annuity) Annuities
Offer a rate of return based on that of a specific market benchmark, like the S&P 500, but typically with a cap on the portion of the market’s return the owner will receive. Additionally, some indexed annuities are based on benchmarks that don’t include dividends, which can limit your total return.
Allow owners to invest the premium in sub-accounts, similar to a mutual fund, and they may offer a guaranteed minimum return of principal even if the underlying assets underperform, but fees and other costs can detract from total return.