What is an equity-indexed annuity?

While technically classified as a fixed annuity, an equity-indexed annuity (EIA), also referred to as a fixed-indexed annuity, can be described as a hybrid of a fixed annuity and a variable annuity, having some characteristics of both, and falling in between regarding the potential for return and level of risk.

With a traditional fixed annuity, the annuity issuer guarantees both the rate of return and the payout. Investors in fixed annuities elect the safety of principal and guaranteed returns over market risks and the potential for higher returns.

With a variable annuity, on the other hand, the rate of return varies according to the performance of the investments you choose from those offered by the issuer (these investments are often called subaccounts). Except for a guaranteed subaccount, variable annuities don’t offer any guarantees on the performance of the subaccounts. You assume all the risks related to those investments including the risk that you may lose principal. In return for assuming a greater amount of risk, investors in variable annuities have a greater potential for growth in earnings.

EIAs take the middle ground, offering limited downside risk balanced by limited upside potential for returns. They offer safety of principal, and generally a minimum rate of return (provided the EIA is held for the full term). EIAs also offer the potential for higher returns by tying interest paid to the performance of a stock index.

Guarantees are subject to the claims-paying ability of the annuity issuer.

Variable annuities are long-term investments suitable for retirement funding and are subject to market fluctuations and investment risk including the possibility of a loss of principal. Variable annuities contain fees including, but not limited to mortality and expense risk charges, sales and surrender (early withdrawal) charges, administrative fees, and charges for optional benefits and riders.

Variable annuities are sold by prospectus. You should consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity, can be obtained from the insurance company issuing the variable annuity, or from your financial professional. You should read the prospectus carefully before you invest.

How do EIAs work?

In general

As with fixed and variable annuities, an EIA is a contract between you and an insurance company, in which you pay premiums and the issuer promises to make periodic payments to you in the future. You can pay premiums by making one lump-sum payment or by paying in installments over time. The periodic payments to you from the issuer can begin immediately (an immediate annuity) or be deferred (a deferred annuity) until a later date.

What makes EIAs unique is that they offer a minimum guaranteed interest rate (typically 3 percent), but allow for the possibility of higher earnings by linking the interest rate calculation to the performance of an equity index. Interest is calculated using a formula based on changes in the index. The terms of the EIA contract dictate how interest is calculated and when it is credited.

An index tracks the performance of a specific group of stocks or bonds in a specific segment of the market or the entire market. Some well-known indexes include the New York Stock Exchange Composite Index, S&P 500, American Stock Exchange Composite Index, and Dow Jones Industrial Average.

Unlike with variable annuities where the buyer’s money is directly invested in the subaccount portfolios, buyers of EIAs are not directly invested in the index or the equities comprising the index. The index is merely the instrument used to measure the gain or loss in the market, and that measurement is used to calculate the interest rate. However, any return, whether guaranteed or not, is only as good as the insurance company that offers it. Both the EIA’s principal and its earnings are entirely dependent on the insurer’s ability to meet its financial obligations.

Many variations

Today, there are many variations on the EIA concept. Many new EIA types have developed since the original EIA was introduced. Each type has its own (sometimes subtly unique) features, all of which can affect your return. Key features (discussed in greater detail below) include:

  • Term
  • Participation rate
  • Interest rate cap
  • Administration or asset fee (also known as margin or spread)
  • Indexing method

You must understand the individual features of an EIA if you want to compare the returns among different EIAs and choose the one that best meets your needs.

Key EIA features

Term

The term refers to the holding period or the period over which interest is calculated. Terms vary from one to several years. Some EIAs offer single terms while others offer multiple, consecutive terms. Some EIAs credit interest at the end of a term only. With others, a percentage of the interest is vested or credited annually or periodically. Further, some EIAs pay simple interest while others pay compound interest. These features are important not only because they affect the amount of your return, but also because having interest vested or credited to your EIA periodically instead of at the end of the term increases the likelihood that you’ll receive at least some interest if you surrender your EIA before maturity.

Multiple term EIAs usually allow you 30 days at the end of each term to withdraw your money without penalty.

Participation rate

The participation rate determines how much of the associated index’s gain will be used to calculate the interest rate. For example, if the participation rate is 90 percent and the index the EIA tracks increase 8 percent, the interest rate would be 7.2 percent (8 X.9 = 7.2).

Participation rates vary among EIAs, but rates of 70 percent to 90 percent are typical. You should consider the participation rate in light of other features offered by a particular EIA; a lower or higher participation rate may be offset by other features.

Interest rate caps

The interest rate cap, or cap rate, is the maximum rate of interest the EIA can earn. If in the above example the cap rate was 6.5 percent, the interest rate would be 6.5 percent, not 7.2 percent. Not all EIAs have interest rate caps, and again, you should consider any interest rate cap in light of other features offered by the EIA.

Administration or asset fees (margin or spread)

Some EIAs have an administration or asset fee (sometimes called margin or spread) instead of, or in addition to, the participation rate. The administration fee is a percentage that is subtracted from the index’s gain. For example, if the administration fee is 2 percent, and the index increases 8 percent, the interest rate would be 6 percent (8 – 2 = 6). If there is also a participation rate of 90 percent, the interest rate would be 5.4 percent ([8 – 2] x.9 = 5.4).

Most EIAs count index gains from market price changes only and do not include dividends.

When considering an EIA, you should note whether the issuer is allowed to change the participation rate, interest rate cap, and/or administration fee. A decrease in your participation rate or interest rate cap or an increase in the administration fee could result in lower returns.

Indexing methods

In general

The indexing method is the approach used to measure the gain (or loss), or change, in an index.

The point-to-point or European method

The point-to-point or European method compares the value of the index at the beginning of the term to its value at the end of the term, disregarding fluctuations in between. This is the simplest method. With this method, interest may not be credited to your annuity until the end of the term. If you surrender your EIA early, you may not receive any interest for that term.

John buys an EIA linked to the S&P 500 that uses the point-to-point method. The term is seven years. On the date of the issue, the index is at 1,000. On the maturity date, the index is at 1,100. A gain of 10 percent is realized ([1,100 – 1,000] ÷1,000 =.10). Assuming a 90 percent participation rate and no other variables, John’s EIA earns a rate of interest of 9 percent (.10 x.9 = 9 percent), which is credited at maturity.

The high-water-mark or look-back method

The high-water-mark or look-back method looks at the index at specific points during the term (e.g., each anniversary date). The highest of these is then used as the end-of-term index level and compared with the index value at the beginning of the term. This could result in a higher interest rate than the point-to-point method if the index has moved down towards the end of the term. With this method, interest is added to the value of your annuity at the end of the term. If you surrender your EIA early, you may not receive any interest for that term.

John buys an EIA linked to the S&P 500 that uses the high-water-mark method. The term is seven years. On the date of the issue, the index is at 1,000. The index on the EIA’s anniversary date for the next six years is as follows: Year 1 = 1,050, Year 2 = 1,150, Year 3 = 1,050, Year 4 = 1,000, Year 5 = 950, Year 6 = 900, and on the seventh anniversary, at maturity, the index is at 850. The index at the high watermark is 1,150. A gain of 15 percent is realized ([1,150 – 1,000] ÷ 1,000 =.15). Assuming a 90 percent participation rate and no other variables, John’s EIA earns a rate of interest of 13.5 percent (.15 x.9 = 13.5 percent).

Annual reset or ratchet method

This method compares the index from the beginning to the end of each year. Interest is added to the value of your annuity at the end of each year. Once credited to your annuity, the interest is locked in. The beginning index value is reset at the end of each year, so future decreases do not affect the interest already earned. With this method, you are more likely to receive some interest in the event you surrender your EIA early. However, you are also more likely to have a lower participation rate, and/or a participation rate that changes annually.

John buys a $100,000 EIA linked to the S&P 500 that uses the annual reset method. The term is three years. On the date of the issue, the index is at 1,000. The index on the EIA’s first anniversary is 1,100. A gain of 10 percent is realized ([1,100 – 1,000] ÷ 1,000 =.10). Assuming a 90 percent participation rate and no other variables, John’s EIA earns a rate of interest of 9 percent (10 percent x.9 = 9 percent), which is credited at the end of the first year. At the beginning of Year 2, John’s EIA is valued at $109,000 ($100,000 +.9 ($100,000) = $109,000) and the index resets to 1,100. The index on the EIA’s second anniversary is 1,150. A gain of 4.5 percent is realized ([1,150 – 1,100] ÷ 1,100 =.045). Assuming a 90 percent participation rate and no other variables, John’s EIA earns a rate of interest of approximately 4 percent (4.5 percent x.9 = 4.05 percent), which is credited at the end of Year 2. At the beginning of Year 3, John’s EIA is valued at approximately $113,360 ($109,000 +.4 ($109,000) = $113,360) and the index resets to 1,150. At the end of Year 3, the maturity date, the index is at 1,050. No gain is realized (1,050 – 1,150 = 0 gain) and no interest is credited to John’s EIA. Over three years, John’s EIA has earned $13,360 or 13.36 percent.

Averaging or Asian method

The averaging or Asian method involves averaging several points of the index to establish the beginning and/or ending index value. For example, the index’s value at the end of each month for 12 months may be added together and divided by 12. Averaging can protect you against sudden declines in the index, but may also reduce returns if the market increases.

John buys an EIA linked to the S&P 500 that uses the averaging method. The term is seven years. On the date of issue, the index is at 1,000. The index on the EIA’s anniversary date for the next six years is as follows: Year 1 = 1,050, Year 2 = 1,100, Year 3 = 1,050, Year 4 = 1,100, Year 5 = 1,150, Year 6 = 1,150, and on the seventh anniversary, at maturity, the index is at 1,150. The index’s average over the seven-year term is1107 ([1,050 + 1,100 + 1,050 + 1,100 + 1,150 + 1,150 + 1,150] ÷ 7 = 1107). The interest rate used will be 11.07 percent

What are the advantages of EIAs

EIAs offer the same benefits as traditional fixed annuities, including:

          The Biggest advantage is Tax-deferred growth

  • No annual contribution limits
  • Guaranteed death benefits for beneficiaries
  • No mandatory distributions after age 70½
  • The option of guaranteed income for life through annuitization
  • Limited penalty-free annual withdrawal potential
  • Avoidance of probate

EIAs also offer other benefits, including:

  • Safety of principal and guaranteed minimum returns (provided the EIA is held for the full term). Combined with
  • Potential for higher index-linked returns

Guarantees are subject to the claims-paying ability of the issuer.

What are the disadvantages of EIAs?

EIAs generally have the same disadvantages as traditional fixed annuities, including:

  • You pay premiums with after-tax dollars (a disadvantage when compared to deductible traditional IRA contributions and pretax contributions to employer-sponsored retirement plans)
  • When withdrawn, earnings are taxed at ordinary income tax rates; lower capital gains tax rates won’t apply
  • Withdrawals made before age 59½ are generally subject to a 10 percent penalty tax
  • Surrender fees charges in the early years of the annuity

Further, EIAs have these additional disadvantages:

  • Participation in market increases is limited
  • Feature variations can make comparisons among EIAs challenging

Questions and answers

When are annuities particularly appropriate?

Generally, EIAs may be appropriate if you are planning for retirement and you:

  • Have contributed the maximum to your employer-sponsored retirement plan (e.g., 401(k) plan) and IRA and want additional tax-deferred investments
  • Desire death benefits
  • Can keep the annuity long-term
  • Expect to be in a lower income tax bracket when you retire
  • Desire a guaranteed income in retirement

Can I get my money early?

Getting out of your EIA early may mean taking a loss, especially if your annuity does not credit interest until the end of the term. Many EIAs have surrender charges in the early years of the contract, which can be a percentage of your withdrawal or a reduction in interest rate. Further, like any annuity, withdrawals made before you reach age 59½ are generally subject to a 10 percent penalty tax. You should only consider an annuity as part of a long-term accumulation strategy.

How are EIAs taxed?

As with any nonqualified annuity, your premiums are paid with after-tax dollars, which is why you should generally consider them only if you have contributed the maximum to your 401(k) plan and IRA. However, interest earned is tax-deferred until it is withdrawn (but is taxed as ordinary income when taken). For more information, see our separate topic discussion, Taxation of Annuities.

Common Annuity Riders

What are they?

Changes in the financial climate spawn changes and innovations in the financial products available. Annuity issuers have developed some options and riders intended to address some of these changes. Riders are optional features from which you can choose that add benefits to the basic annuity contract. Most of the riders focus on creating minimum accumulation guarantees or alternative ways to access annuity accumulation values for income. Most of these riders come with a cost. The cost may be applied at the time you purchase the annuity, when you buy the rider, or when you activate the rider. Some of the riders are common to most types of annuities (fixed, variable, deferred, and immediate) while other riders are unique to a particular type of annuity. The specific type of annuity rider available to you usually depends on the particular annuity issuer and the type of annuity you are considering.

Annuity guarantees are based on the claims-paying ability of the annuity issuer.

Withdrawals made before age 59½ may be subject to a 10 percent federal income tax penalty.

A Note About Variable Annuities

Variable annuities are long-term investments suitable for retirement funding and are subject to market fluctuations and investment risk including the possibility of a loss of principal. Variable annuities contain fees including, but not limited to mortality and expense risk charges, sales and surrender (early withdrawal) charges, administrative fees, and charges for optional benefits and riders.

Variable annuities are sold by prospectus. You should consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity, can be obtained from the insurance company issuing the variable annuity, or from your financial professional. You should read the prospectus carefully before you invest.

Costs of Riders

Annuity issuers usually charge an annual fee for riders or extra benefits added to their policy. The cost of an individual rider varies with the issuer offering it, but may range from 0.1 percent to 1.0 percent or more.

Types of riders

Cost of living adjustment rider

This rider may be available in an immediate annuity and is intended to offset the effects of inflation on future annuity payments. The rider increases annuity payments by one to five percent annually. Usually, the payment increase is selected at the time you buy the rider and remains constant for a stated period or the duration of annuity payments. However, the first few years of payments received with the rider ordinarily are less than they would be for payments without the rider. In essence, it may take many years for the payments with the rider to equal what the payments would have been without the rider.

Cash refund rider

This rider, available on some immediate annuities, provides that if the total of all payments received by the time of your death is less than the premium you paid, the balance is paid in a lump sum to your annuity beneficiary.

Installment refund rider

This rider is similar to the cash refund rider except that the beneficiary receives the balance of the annuity proceeds in installment payments instead of a lump sum.

Impaired risk (medically underwritten) rider

This benefit may be added to an immediate annuity as a rider, or it may be sold as a separate immediate annuity. It is only available for immediate annuity payments made for your lifetime, as opposed to a fixed period. If you have a medical condition that reduces your life expectancy, the impaired risk rider bases your immediate annuity payments on your shorter life expectancy. Because it is expected that you will not live as long as a comparably-aged person without your medical condition, the annuity issuer will likely have fewer years to make payments to you. Thus, your shortened life expectancy allows you to receive either a larger income payment for the same premium or the same income payment for a lower premium.

Commuted payout rider

This immediate annuity rider allows you to withdraw a lump-sum payment in addition to the immediate annuity payments you already receive. Usually, this option is available for a limited period while you are receiving annuity payments, and may be limited to a maximum dollar amount as well as a maximum percentage of the premium you paid.

Guaranteed minimum accumulation benefit rider (GMAB)

This rider, available in some variable annuities, restores your account value to the number of your total premiums paid if, after a prescribed number years (usually 5 to 10) the annuity’s accumulation (cash) value is less than the premiums paid (excluding any withdrawals you made). Some companies offer this feature with the ability to lock in gains in the account value. Thereafter, your account value will never be less than your total premiums paid, plus locked-in gains, and minus withdrawals.

This rider may appeal to you if you know you will need access to your money in 5 to 10 years, want the opportunity for your investment to benefit from potential market upside, but you want to ensure that your investment does not lose money, such as when investing for a child’s future college tuition.

Guaranteed minimum withdrawal benefit rider (GMWB)

Another variable annuity rider, it allows you to begin withdrawing money from the account with the assurance that, regardless of market performance, you will receive at least the original amount of the premium you invested even if your actual account value decreases to zero. Annual withdrawals are usually limited to a percentage of the total premiums paid (usually 5 to 12 percent annually).

This rider is useful if you want the chance to have your premium invested in the market with the assurance of a guaranteed income equal to at least the amount of your premium. Also, some issuers will add a “step-up” feature to this rider. If your account value increases greater than your premium, your guaranteed withdrawal will be based on the increased account value.

Suppose you invest $100,000 in a variable annuity and purchase the 7 percent guaranteed minimum withdrawal benefit rider. You begin receiving $7,000 each year. Now suppose that due to poor market performance, your account further declines 10 percent each year. Because of your withdrawals and poor market performance, your account value is zero in the 10th year. But because of the guaranteed minimum withdrawal benefit, you will still receive $7,000 per year until you have received the return of all of your premium (14.2 years of payments) even though the account value has reached zero by year 10.

Guaranteed minimum income benefit rider (GMIB)

This variable annuity rider guarantees a minimum income, regardless of your actual account value. The issuer adds a guaranteed growth rate to your premiums (usually five to seven percent) which is the guaranteed minimum account balance. After a minimum number of years, (usually 10) you can convert the variable annuity to an immediate annuity (called “annuitization”) and receive payments based on the greater of the actual account balance or the guaranteed minimum account balance.

This rider is useful if you want the opportunity to have your premium invested in the market, but you also want a guaranteed minimum income that will last for the rest of your life. To use the rider, you must annuitize the contract which means you turn the entire account balance over to the annuity issuer in exchange for guaranteed payments. You no longer have access to the account balance, and your payments will ordinarily remain fixed.

Guaranteed lifetime withdrawal benefit rider (GLWB)

This benefit is found in variable and equity-indexed annuities. It allows you to receive a guaranteed income for life based on a percentage of either your actual account value or a guaranteed minimum account value. The payments will never decrease thereafter, even if your annuity account balance decreases or is exhausted. This rider is similar to the guaranteed minimum income benefit rider, except that you do not have to annuitize your contract to receive guaranteed withdrawals. The guaranteed lifetime withdrawal benefit rider allows your remaining cash value to continue to accumulate. Also, most issuers allow you to take withdrawals from the remaining cash value while still, you continue to receive your guaranteed withdrawals.

This rider can be a good idea if you need a guaranteed income but don’t like the idea of giving up the control over your money that annuitization requires.

Assume you invest $200,000 in an annuity including a guaranteed lifetime withdrawal benefit rider. The rider provides that your premium will earn a minimum of five percent per year, regardless of market performance. At the time you want to begin receiving withdrawals, you can receive six percent of the greater of your cash value or the minimum guaranteed account value. Five years after buying the annuity you decide you want to begin receiving annual withdrawals. However, the stock market has performed poorly such that your cash value has decreased to $150,000. In this case, you would receive withdrawals based on six percent of the greater of your actual cash value ($150,000) or the minimum guaranteed account value ($200,000 at five percent per year for five years, or $255,000). Thus, your guaranteed minimum withdrawals will be $15,300 per year. You can still take additional distributions from the remaining balance of the cash value ($150,000).

Living needs benefits rider

Found primarily in fixed annuities, it is also referred to as a long-term care rider. If you become confined to a nursing home or are unable to take care of yourself, this rider allows you to access more of your annuity account balance, possibly up to 100 percent, without surrender charges or distribution costs that would otherwise apply. Some riders also increase the amount available for monthly withdrawals over the actual account balance.

Disability/unemployment riders

These riders are found in most fixed annuities and some variable annuities. If you become disabled for an extended period, ranging anywhere from 60 days to 1 year, or if you are unemployed for a similar length of time and are eligible for unemployment benefits, this rider allows you to access a portion or all of your annuity’s accumulation value without surrender charges being applied.

Terminal illness rider

This rider, available in both fixed and variable annuities, waives surrender charges for a portion or all of your account balance if you suffer from a terminal illness with a medical life expectancy of one year or less.

Guaranteed Annuity Contracts

What is a guaranteed annuity contract?

Guaranteed annuity contract covers multiple annuitants

A guaranteed annuity contract (often called a group annuity contract) is a type of annuity that covers a group of annuitants who are usually linked through work or membership in a group or organization. Because multiple annuitants can be covered under one contract, the expenses (per annuitant) for the annuity tend to be lower than if separate annuities were purchased for each person.

Usually has a fixed rate of interest

A guaranteed annuity contract is similar in some respects to a fixed annuity. The issuer of the guaranteed annuity contract will usually guarantee that the annuity will be credited with a fixed rate of interest for a certain period. For example, the issuer may guarantee that it will pay 6 percent on the annuity for the first five years of the contract and then pay a minimum of 4 percent for the remainder of the contract. Typically, the annuity issuer will also agree to renew the annuity after the initial period and pay the higher rate of interest for another term, depending on the level of interest rates at the time.

Guarantees are based on the claims-paying ability of the annuity issuer.

Used frequently by companies to fund pension plans

Guaranteed annuity contracts were developed in the 1920s and used frequently by large corporations to fund their defined benefit pension plans. The insurance industry developed many specialized types of guaranteed annuity contracts to meet the specific needs of many corporate customers. As the number of defined benefit pension plans declined over the years and as defined contribution plans increased in popularity, many companies used guaranteed annuity contracts in the 1970s to fund their defined contribution retirement plans.

Not frequently used in recent years

The use of guaranteed annuity contracts has declined in popularity in recent years, partly because of the rapid changes in interest rates. Although there are still some guaranteed annuity contracts in existence, very few companies or groups offer this type of annuity to their employees or their members.

Similar to fixed annuities

In many respects, guaranteed annuity contracts are similar to fixed annuities (except that guaranteed annuity contracts are used to cover a group of individuals). Many of the strengths and tradeoffs to guaranteed annuity contracts and many of the tax implications are similar to fixed annuities.

Annuity Funding Options

What are the annuity funding options?

Two funding options

There are two ways you can fund an annuity: with a single premium payment or through a series of periodic premium payments. With a single premium payment, you make one lump-sum payment to the annuity issuer and then do not make any more payments. With a periodic payment plan, you make a series of payments to the annuity issuer over some time.

Single premium payment funding option usually used by people who have received a large sum of money

Most people who purchase an annuity with a single premium payment are individuals who have received a large sum of money at one time. For example, it may be someone who has received life insurance proceeds, has sold a business, or has liquidated a retirement plan and would like to convert that lump-sum amount into an income stream.

The single premium annuity may be either an immediate or deferred annuity

A single premium annuity may be either an immediate or deferred annuity. A single premium immediate annuity (SPIA) is an annuity that immediately (usually within one year of the purchase) begins making payments to you after the purchase date. You might want to purchase this type of annuity if you have just sold your business and would like to receive income immediately. The second type of single premium annuity is a single premium deferred annuity (SPDA). With this type of annuity, you purchase the annuity with a lump-sum payment that then accumulates for some time before the payout begins. The period before the payments to the purchaser begin might be as short as one year or as long as decades.

A single premium annuity may be a fixed annuity, variable annuity, or equity-indexed annuity

A single premium annuity may also be classified as a fixed annuity, a variable annuity, or an equity-indexed annuity. The issuer of a fixed annuity pays a fixed rate of interest on the money that is invested in the annuity. Then, once the payout period begins, the purchaser receives a series of fixed payments. The purchaser of a variable annuity receives a rate of return that varies depending on the performance of underlying investment accounts. The payments that the purchaser receives once annuitization begins may be fixed or may vary from one pay period to the next, depending on the type of payout selected. Finally, a single premium annuity may also be an equity-indexed annuity, which is a hybrid between a fixed and variable annuity.

Variable annuities are long-term investments suitable for retirement funding and are subject to market fluctuations and investment risk including the possibility of a loss of principal. Variable annuities contain fees including, but not limited to mortality and expense risk charges, sales and surrender (early withdrawal) charges, administrative fees, and charges for optional benefits and riders. Variable annuities are sold by prospectus. You should consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity, can be obtained from the insurance company issuing the variable annuity or from your financial professional. You should read the prospectus carefully before you invest.

You can invest money through multiple payments with a flexible premium annuity

Unlike a single premium annuity in which only one lump-sum payment is made into the annuity, you can also purchase an annuity by making a series of periodic payments. For instance, you may want to purchase a flexible premium annuity if you are saving for your retirement in the future and would like to save a set (or variable) amount of money each year toward that goal.

Two ways to pay periodic premiums

There are two ways you can make periodic payments. First, you can pay the premiums on a level-premium basis, meaning you invest a set amount each year (or month or some other period) into the annuity. For instance, you may want to invest $1,000 a year in the annuity. A second way to pay the premiums is on a more flexible basis whereby you can invest money in the annuity as frequently (or infrequently) as you like and can invest as much or as little as you like. Under this method of purchasing an annuity, you may invest $1,000 in the first year, $500 the second year, nothing the third year, and $2,000 the fourth year, for example.

Some flexible premium annuities have a limit on the minimum amount you can invest at one time (usually $100) and may have a maximum amount that can be invested ($1 million, for example).

A flexible premium annuity is a deferred annuity

By its nature, the type of annuity in which you make a series of payments is a deferred annuity. If elected, the annuitization phase (i.e., when you will begin receiving payments from the annuity) will not occur until some point in the future after you have stopped paying premiums into the annuity. This may be 1 year, 10 years, or 40 years in the future.

The flexible premium annuity may be a fixed annuity, a variable annuity, or an equity-indexed annuity

Like a single premium annuity, a flexible premium annuity may be a fixed, variable, or equity-indexed annuity.

By Kingdom Financial Ministries

A financial professional can apply his or her skills to your specific needs. Just as important, you have someone who can answer questions about things that you may find confusing or anxiety-provoking. When the financial markets go through one of their periodic downturns, having someone you can turn to may help you make sense of it all. Donald A. Galade is a self-starting motivated individual who believes the Bible is the inspired Word of God. Don is President of Galade Financial Services, Inc. a full-service insurance brokerage firm, and CEO of GFS Financial Advisors, LLC. which is a registered investment advisory (RIA) firm located in Drums, PA. Don is a home-schooling dad who blends his passion for others and his professional skills to help clients define and meet their financial goals. He has worked in the Financial Services industry since 1987 and has been a Financial Advisor since 2004 Don routinely attends intense training and continuing education sessions that deal exclusively with the financial needs of those who are near or currently in retirement and is well versed in the latest strategies designed to meet those needs. He is a former Vice President of the Hazleton, PA chapter of the Pennsylvanians for Human Life, and is also a former member of the Kiwanis, Unico, and Rotary clubs in North-East PA.