Annuity types, (Traditional Fixed, Fixed Indexed, Variable) what's the difference?
Before I answer that let me first point out what is EXACTLY the same in ALL annuity contracts.
First, ALL annuities, upon whatever form, are exempt from legal process pursuant to Florida Statute 222.14
No one can ever win a lawsuit judgment against you and EVER reach the cash asset protected by the annuity contract. Not only does this protect you, it also protects your beneficiaries. Please click and read the Florida Statute for yourself. http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0200-0299/0222/Sections/0222.14.html
Second ALL annuity contracts pay the death benefit DIRECTLY to the named beneficiary and thus shelters the proceeds from the Probate Court System. Minimum probate attorney fees in Florida are 3% of your Estate up to $900,000. Click the link below to read Florida Statue 733.6171 for yourself.
Third, the cash asset in ALL annuities grow on a tax deferred basis. This means YOU do not pay yearly Federal Income Tax on your interest earnings until and unless you make a withdrawal. When you make a withdrawal you only pay the tax on the amount withdrawn.
Fourth, most ALL annuities allow you to withdraw 10% per year penalty fee and some contracts are cumulative to 50%.
So back to the topic, what's the difference?
The ONLY difference is how interest or gain will be credited to your annuity.
In a Traditional Fixed Annuity the company declares the interest rate each and every year and that rate is guaranteed for the entire year. The rate is based on the company's investment experience.
In a Fixed Indexed Annuity, also known as an Equity Index Annuity, your interest earnings are tied to an outside index such as the Standard & Poors 500 Stock Index. Commonly called the S&P 500. These products allow one to participate in "some" of the gains of the market without the RISK of losing any of your principal. The worst thing that happens in a flat or down market is a 0% interest credit. The 50 year historical average of these contracts is 9.17% per year with a probability of 0% interest credited 3 out of 10 years, meaning you would average 6.4% interest per year over a 10 year period and NEVER have one penny of your cash at risk.
A Variable Annuity is a stock broker product. Your cash asset is directly invested in the market and may lose value. Because your principal may lose value I don't personally recommend these products. They violate the foundational aspect of safety of principal inherent in ALL annuities EXCEPT "Variable" annuities. That being said, I'm NOT making a blanket condemnation of this product and I have seen actual client statements with earnings of 25% or more. Unfortunately and more commonly I have seen clients lose value in these products.
Now go take on the day.
Fiduciary Financial Consultant
Toll free: 1-877-331-GARY