Thursday, September 13, 2007

Fixed Indexed Annuity: Bank CD Alternative

A fixed indexed annuity (FIA) is the product of choice for top selling annuity agents who are tired of seeing their clients lose money in low interest rate CDs. A fixed indexed annuity is a hybrid fixed product that is fast becoming the new safe home for billions of former CD, stock market and mutual fund dollars. And with good reason.


A FIA provides a safety net of usually 1-3% interest compounded annually. But this is just the minimum guarantee through the contract term. The upside earning potential is much higher.

As the name implies, the fixed indexed annuity is tied to an equity index such as the Standard & Poors 500. The S&P 500 is the benchmark for U.S. equity markets, representing the general health of the overall stock market. As the market goes up your client's earnings go up because they participate in a percentage of the increase. But (and this very important) when the stock market comes back down again as it always does, your clients dont lose any money.


This bears repeating. When the stock market goes up, earnings go up with it subject to a cap. But when the market comes back down again as it always does, the policy does not lose any money. Earnings are locked in at each annual anniversary index point. FIA owners earn 2 or 3 times the guaranteed interest rate when the stock market goes up, and when the stock market comes back down again they get to keep all profits. Upside earnings without the downside risk. How cool is that?


Whats more, your client's earnings grow tax deferred as long as they stay in the annuity. This means they earn even more money on the portion they dont have to send Uncle Sam. Unlike a CD, there is no Form 1099 to add to income tax returns each year. Why pay taxes on income you dont spend? Seniors citizens are especially fond of Fixed Indexed Annuities since deferred interest is not counted as provisional income and can reduce or eliminate taxation of Social Security benefits. FIAs are also becoming the favorite funding vehicle in small business retirement plans like the 401(k) and SEP-IRA.


Whether you sell to retirees or future retirees, you owe it to yourself to learn why millions of people are moving billions (actually, trillions) of dollars into fixed indexed annuities. Theyre the sensible alternative that can make you very large commissions. Gary Le Mon is a wholesale distributor of fixed indexed annuities for Allianz, American Equity, Sun Life Financial, and ING. Author and developer of the Safe Money Seminar, a financial planning seminar for Seniors, Gary serves as guest speaker on behalf of agents and agencies nationwide. He is coach, mentor and motivator to over 700 general agents in his insurance marketing organization, InsuranStar Marketing. See also