What are the Basics of Fixed Index Annuity Process?

A Fixed Index Annuity (FIA) can help you to build, grow, and preserve your precious, hard-earned savings to attain financial freedom during retirement. FIAs represent a contract between an insurance company and an annuitant.

The insurance company issues FIA to the annuitant in exchange for a premium. The annuitant then becomes owner of the contract. He/she starts receiving a steady stream of income either after the expiry of the annuity contract or at some time in the future. The annuity income accumulates during the duration of the contract term allowing the annuitant to build a sufficient nest egg that will last throughout retirement.

Fixed Index Annuity Process: An Overview

Most fixed index annuities involve two phases. The first phase is the accumulation phase when you receive income on your annuity amount. The second is the distribution phase when the annuity amount is distributed in the form of a steady stream of income that usually lasts your retirement.

Phase 1: Accumulation of Annuity

This phase begins as soon as you purchase the FIA from the insurance company. The annuity will accumulate at a fixed rate plus a percentage of growth of an external stock index. This phase lasts till the duration of the annuity specified in the terms of contract.

Phase 2: Distribution of Annuity

The distribution phase of the annuity begins after expiry of the annuity contract. You can also delay the receipt of the annuity amount once the contract term has expired. The income amount is received in the form of stream of income annuitization payments over a specified period of time, which usually lasts throughout your retirement. Some FIAs also allow you to take withdrawals in the form of payments instead of annuitication. You can choose a specific payment option based on your financial needs and requirements.

Important Features of Fixed Index Annuity

A fixed index annuity ensures a guaranteed minimum amount with additional income based on the performance of specified stock indexes. The guarantee of the annuity payment depends on financial strength of the insurance company that issues the annuity.

With fixed index annuity, the income earned is tax deferred until you withdraw money from the account. Tax deferral allows your money to grow at a faster rate thereby allowing you to build a sufficient nest egg to last your retirement. The income is taxed once you start receiving the annuity amount at the end of the contract term. Note that premature withdrawal of the annuity amount before the expiry of the contract duration results in a 10% tax penalty.

Fixed Index Annuity offers you a range of benefits that allows you to preserve, protect and build your wealth.

Most FIAs today comes with death benefits, guaranteed lifetime income, and various other value added features that not only secures your financial future but also that of your loved ones. FIAs will help you leave a financial legacy to your loved ones that will fulfill their financial needs.

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