A Fixed Indexed Annuity is a special 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 an equity index, such as the S&P 500 Composite Stock Price Index. When the equity index increases you receive a credit or interest return based on some or all of the increase. When the equity index declines you receive no credit or interest return but you take no loss on principle or locked in gain. The insurance company typically guarantees a minimum return. Guaranteed minimum return rates vary. 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.

ALWAYS READ THE INSURANCE COMPANY PRODUCT BROCHURE BEFORE PURCHASING A FIXED INDEXED ANNUITY!!

How is a Fixed Indexed Annuity index-linked interest rate computed?

The index-linked gain depends on the particular combination of indexing features that a Fixed Indexed Annuity uses. The most common indexing features are listed below. To fully understand a Fixed Indexed Annuity, make sure you not only understand each feature, but also how the features work together since these features can dramatically impact the return on your investment.  

• Participation Rates - A participation rate determines how much of the gain in the index will be credited to the annuity. For example, the insurance company may set the participation rate at 100%, which means 100% of principle and interest earned participates in the in the gains up to any interest rate cap.  
• Spread/Margin/Asset Fee - Some Fixed Indexed Annuities use a spread, margin or asset fee in addition to, or instead of, a participation rate. This percentage will be subtracted from any gain in the index linked to the annuity. For example, if the index gained 10% and the spread/margin/asset fee is 1.5%, then the gain in the annuity would be 8.5%.  
• Interest Rate Caps - Some Fixed Indexed Annuities may put a cap or upper limit on your return. This cap rate is generally stated as a percentage. This is the maximum rate of interest the annuity will earn. For example, if the index linked to the annuity gained 10% and the cap rate was 8%, then the gain in the annuity would
  be 8%.  

Can I get my money when I need it?

Yes, but Fixed Indexed Annuities are long-term investments. Getting out early may mean taking a substantial loss. All annuities have surrender charges. Depending on the type of annuity you have, the surrender charge will vary by how long and how much the charge will be. Surrender charges are generally used to cover the potential loss to the insurance company for costs associated with the annuity and losses due to market declines. The surrender charge can be a percentage of the amount withdrawn or a reduction in the interest rate credited to the Fixed Indexed Annuity or both. Most annuities allow up to 10% withdrawal or a scheduled payout without a surrender charge. Also, any withdrawals from tax-deferred annuities before you reach the age of 59½ are generally subject to a 10% IRS tax penalty in addition to any gain being taxed as ordinary income.  

Indexing Methods

As described in the table below, there are several methods for determining the change in the relevant index over the period of the annuity. These varying methods impact the calculation of the amount of interest to be credited to the contract based on a change in the index.

Indexing Method	Description
Annual Reset (Ratchet)	Compares the change in the index from the beginning to the end of each year. Any declines are ignored. Advantage: Your gain is "locked in" each year.
High Water Mark	Looks at the index value at various points during the contract, usually annual anniversaries. It then takes the highest of these values and compares it to the index level at the start of the term. Advantage: May credit you with more interest than other indexing methods and protect against declines in the index during any crediting period.
Point-to-Point	Compares the change in the index at two discrete points in time, such as the beginning and ending dates of the contract term. Advantage: May be combined with other features, such as higher cap and participation rates, that may credit you with more interest.

• Index Averaging - Some Fixed Indexed Annuities average an index's value either daily or monthly rather than use the actual value of the index on a specified date. This can be used for locking in the gains.
• Interest Calculation - The way that an insurance company calculates interest earned during the term of a Fixed Indexed Annuity can make a difference in the amount of money you will earn.
• Exclusion of Dividends - Since your money is not directly invested in the market, you will not receive any dividends earned or pay taxes each year for dividends earned like most other market investments. Market indexes may or may not credit dividends.  

This is general information concerning fixed indexed annuities. It is not to be used for specific planning purposes. Consult a qualified legal or tax advisor to be advised as to how annuities will affect your current and future tax situation.

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