Again, as I said above, there are two general categories of Annuities, which are, Deferred (Accumulation) and Income (or immediate) Annuities. But, then in addition, there are two general classes of Annuities within them, which are, Fixed and Variable, then what I call a "Hybrid" the Indexed Annuity. Below I will provide some information on the structure and design of each and word my way down to the FIA (Fixed Indexed Annuity).
Fixed Annuities: Have the attribute of guarantees based on the design of the product reflect that the account balance and interest are associated with guarantees and safety of principle, but I think they are a little too tame to generate any respectable, productive, favorable, fantastic or knocking the socks off returns or yield. The positive aspect is that with the Fixed Annuity contact (and Fixed Indexed Annuities as well as explained below) the Capital Risk is borne by the insurance company who underwrote the contract and insures or backs that account with its full faith, promises and in addition is backed by the General asset of that insurance company not the Annuitant. Then the Annuitant is further protected in the State of Washington for up to $500,000.00 per individual for their deposits in Fixed Annuities including the hybrid spinoff cousin the “Fixed Indexed Annuity”. You can do a Google search of “Washington Life & Disability Insurance Guaranty Association. I believe all the states have these "association" funds, and Washington has one of the best. This is "publicly" accessible information that anyone can get. I have printed this information for myself, going back to 1992. which shows it has been around for a while.
Variable Annuities: Have the attributes of the underlying investments in the Variable Annuity called sub accounts, like clones of mutual funds each designed to go up and down. Of course, like Mutual funds we “hope” they all go up. They (the Mutual fund like sub accounts) are inside the annuity so they get the advantage of the same tax deferred build up but they will not build in value unless there is growth in the stock market. Again, we hope the market will go up for these products. That growth does not lock in at each anniversary date and there are huge administrative expenses in addition to the fund manager’s fees in this type of annuity which in downturn markets weigh heavy on the yields, especially in Bear markets. With these Variable Annuities, like with a group of mutual funds it is not likely you would lose all your money, but the value can go way down and be down when you need your money. Often the market has the end result of just being flat, not having even the grown as good as a bank account would have had, nor keep up with inflation. ALL the investment risk in Variable Annuities like Mutual Funds and stocks, is borne by the annuitant as an individual like investing directly in the market. So these products are designed to go up and down, no insurance company stands, backing up the asset and no organization stands ready to protect the individual investor annuitant (investor) from the insurance company’s insolvency like with a Fixed Annuity, as explained above.
Indexed Annuities: Then there is a hybrid class or type, the Indexed Annuity, which one could say in many ways, is a combination of a Fixed and Variable Annuity. These were previously called Equity-Indexed Annuities. The word “Equity” not too long ago was actually officially deleted or removed from its name to avoid a misunderstood assumption that stock market investing was present in these products. This type of tax-deferred annuity is not a direct investment in the market which by its core design, which is what, in part, does not expose you to the capital losses from the downturns of market swings. This is the best way to protect your assets, while getting the best yield possible eliminating the need for diversification allocating a large portion in low yielding instrument for capital preservation. This increases the overall return of the account. Since there are not administrative expense, or management fees those are not present to reduce yield.
This product is not designed to go up and down like a mutual fund.
This product is backed up by the general assets of the insurance company like fixed annuities.
This product’s asset account balance is protected under the state fund for Insurance company insolvency up to $500,000.00 per individual. You can read about it on their website for more details; "Washington Life & Disability Guaranty Association" to get the information directly and not from me officially, for my compliance needs.
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