Here is a FIA that is Hard to Beat
In today’s ultralow interest rate environment, it’s increasingly difficult to find an annuity that keeps interest rates stable. Instead, insurance companies in the last couple of months have focused on trimming rates.
But here is a pleasant — and highly welcome — surprise: A fixed indexed annuity (FIA) underwritten by a major player has rolled out an unusually generous FIA – one paying a 95 percent participation rate on a respectable low-volatility index. This is more than three times what most FIAs pay today on an index tied to the often more robust — but also more volatile — S&P 500.
To be completely accurate, this FIA, as generous as it is, has actually cut its index participation rates this year. When it was introduced last spring, it offered a whopping 130 percent participation rate. After a couple of months on the market, that rate was cut to 100 percent. Recently, it was cut yet again, to today’s rate of 95 percent.
Nonetheless, this obviously remains a highly attractive deal as long as it lasts – and it’s available to interested consumers for a minimum of only $5,000 in a qualified or non-qualified account. It offers an income rider charging 1 percent a year, but investors may be better off waiving this to maximize returns.
The index to which this FIA is pegged – the BNP Multi-Asset Dynamic Index – is algorithm-based and comprised of three equity futures indices, three bond futures indices and two commodity indices. It seeks to measure the value of a hypothetical exposure to a range of asset classes and geographic regions based on momentum investing principles. Over the last 10 years, the index methodology would have produced an average annual return of 5.5 percent.
This annuity vendor is offering this FIA to gain market share for a while, as other competitors also do periodically. The low-volatility index is less expensive to hedge than an S&P 500 index because of its steadier performance. Also reducing costs is a two-year point-to-point crediting schedule. The product has a highly competitive seven-year surrender schedule (starting at 9 percent).
Interested investors are advised to act relatively quickly. Even if this FIA stays on the market an extended period of time, its participation rate is likely to be cut yet again after additional sales are generated.
For more information, visit Annuity FYI at www.annuityfyi.com or call us at (866) 223-2121.
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