Whether you're an advisor recommending an annuity or a client who's thinking about buying one, get ready to do some research on whether it's a sensible course of action. Here's what you should know.
allow consumers to invest in the equity markets via subaccounts, which are similar to mutual funds, and defer taxes on appreciation. Investors experience both the upside and downside of the market, so their account balance may fluctuate.
Be cognizant of fees. In 2018, so-called B-share variable annuities charged an average all-in of 2.366%, plus 0.991% for a cost of a living benefit rider, according to Morningstar.Fixed-rate annuities credit a stated rate of interest to the amount of money invested in the contract for a specified period of time. Taxes are deferred on the growth.
Contract holders aren't directly invested in the index, so they aren't fully exposed to market activity. Insurance companies use derivatives to keep the account value from declining when the index falls.is subject to limitations imposed by the insurer. These are known as "rate caps," "participation rates" and "spreads."
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