What is Indexed Income Potential of FIAs?

Fixed Index Annuity (FIA) provides you the opportunity of accumulation of income based on changes in a stock index. Certain FIAs allow you to choose from a number of indexes rather than just one index. In addition, you can also choose which portion of the annuity’s value will be based on the selected index.

Note that although an external market index or indexes affect the income values, the FIA contract does not directly invest in any index or equity investment. When you purchase an FIA, you are not investing in any stock. However, the performance of the stock index does determine the income you earn from the financial instrument.

Fixed Indexed Income Calculation

After you make an investment in FIA, you can apportion its value to one or more of your preferred stock indexes. We then use a crediting method to track performance of your chosen stock indexes. At the end of the year, we allocate the income to your account based on the stock index performance.

Because of their association with the stock index performance, FIAs provide you the opportunity to earn greater income.

If the stock index appreciates during a specified period, you will automatically receive the required indexed income, which is subject to a cap specified in your FIA terms of agreement. The cap is locked for each year and does not change at any point in the future.

Contrarily, if the stock index declines, your investment amount will remain intact. You will not lose your investment amount due to negative performance of the stock index. And this is good news for you, since your annuity amount does not decrease during the period.

There are two reasons that you do not lose money when stock index declines. The first reason is that you did not invest in the stock index. Secondly, most FIAs come with annual reset feature.

Annual reset is the most beneficial feature of an FIA. Your annuity’s index value automatically resets at the end of each period. Due to annual reset, the ending value of a year becomes the opening value of the next year. This locks in any income you earned during a specific period. As a result, your annuity value will not decline in the subsequent period.

Fixed Indexed Income Crediting Methods

We use different crediting methods to transfer income to your FIA account. Please note that no one method can consistently deliver the most income under all market conditions. In order to understand the credit methods better, you should contact one of our expert professionals for a free consultation.

Annual Point-to-Point Method

This method monitors changes in stock index values from one contract anniversary to the next, and then credits the account with income based on that annual change.

Monthly Sum Method

The monthly sum method monitors changes in the stock index value every month, and then credits the account with income based on that monthly change.

Monthly Average Method

The monthly average method adds up the monthly changes in the stock index value and then divides it by 12 to determine the average value. The opening index value is subtracted from the average value to find out the net change (positive or negative) in the index value. This amount obtained is divided by the opening value to determine the percentage of income that is credited to the account.

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