South Florida Arbitration & Litigation Lawyer Blog
South Florida Indexed Annuity Fraud and Misrepresentation Litigation and FINRA Arbitration Attorney:
What is an indexed annuity?
An indexed annuity is a type of contract between you and an insurance company. During the accumulation period – when you make either a lump sum payment or a series of payments – the insurance company credits you with a return that is based on changes in a securities index, such as the S&P 500 Composite Stock Price Index. Indexed annuity contracts also provide that the contract value will be no less than a specified minimum, regardless of index performance. After the accumulation period, the insurance company will make periodic payments to you under the terms of your contract, unless you choose to receive your contract value in a lump sum.
Can you lose money buying an indexed annuity?
You can lose money buying an indexed annuity. If you need to cancel your annuity early, you may have to pay a significant surrender charge and tax penalties. A surrender charge may result in a loss of principal, so that an investor may receive less than his original purchase payments. Thus, even with a specified minimum value from the insurance company, it can take several years for an investment in an indexed annuity to “break even.”
Many indexed annuities do not apply negative changes in an index to contract value. Therefore, if the index value declines over the course of a crediting period, no deduction is taken from contract value. However, some indexed annuities are being offered that do apply negative changes in the index to contract value, so that if the index declines during the crediting period, you could lose money, whether or not you cancel early.
Further, all amounts payable under an indexed annuity are subject to the claims-paying ability of the insurance company. Circumstances may arise where the insurance company is unable to pay its obligations.
Before considering the purchase or sale of an indexed annuity, it is important that you fully and completely understand all of the material terms of the annuity contract. Also, it is critical to understand that the terms of the contract supersede any oral or written representations made as an inducement to get to purchase and sell the product.
Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If you have any questions concerning the contents of this post, you should contact a qualified professional.
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