Index Annuities are Popular. Why Then Such Bad Press?

Index annuities are extremely popular. Millions of people have invested in these annuities. That tells me that these annuities are popular because it fills a gap. It offers what people want.

The financial press tend to put the blame for it's popularity on aggressive and unscrupulous marketing. But in my opinion such a stand implies that the millions who invested in these annuities are ignorant and were misled by marketers. My experience is that people actively and intelligently investigate the options available to them before they make the decision to invest in an annuity.

I think the appeal of these annuities is that it fills a gap between fixed annuities and variable annuities. The annuity rates vary because it is linked to an equity index like the S&P 500, but you can't lose capital when the markets turn against you. When the markets do well, you benefit from better rates of return. So you get good growth when the markets are strong, but you are insured against loss when the markets recede.

The downside of these annuities is that they are complex. There are various rates that apply and you should understand them fully before you commit. It is also very difficult when you want to shop around because you never compare apples to apples. Every product on offer is so complex in it's composition, that it is difficult to compare different products and their past performance.

As with all annuities, surrender fees and penalties are high. You should never even contemplate the surrender of your annuity. You'll undo all the accumulated benefits that is part of the annuity. Never move your annuity into a new annuity product. You'll incur the same losses as in the case of surrender. Rather keep your annuity as is and invest in the new annuity – indexed or not.

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