What is a Tax Deferred Indexed Annuity?
Your equity-indexed annuity. like other fixed annuities, also promises to pay a minimum interest rate. The rate that will be applied will not be less than this minimum guaranteed rate even if the index-linked interest rate is lower. The value of your index annuity also will not drop below a guaranteed minimum. For example, many indexed annuities guarantee the minimum value will never be less than 80 percent of the premium paid, plus at least 1% in annual interest (less any partial withdrawals). The guaranteed value is the minimum amount available during a term of withdrawals, as well as for some annuitizations and death benefits. The annuity life insurance company will adjust the value of the indexed annuity at the end of each term to reflect any index increases.
In some indexed annuities. the average of an index's value is used rather than the actual value of the index on a specified date. The index averaging may occur at the beginning, the end, or throughout the entire term of the index annuity.
One of the primary advantages of deferred indexed annuities is the opportunity to accumulate a substantial
sum of money by allowing your premium and interest to grow tax-deferred. Unlike taxable investments, you pay no taxes on your indexed annuity interest until you begin to take withdrawals or receive income. This allows your money to grow faster than in a taxable account, because you earn interest on the money that would have otherwise been paid in taxes.
Your tax-deferred indexed annuity is stable and safe. State insurance department laws require annuity insurance companies establish and maintain reserves equal to the cash surrender value of your annuity contract at all times. In addition, state laws require annuity life insurance companies maintain minimum amounts of capital and surplus for further contract owner protection.
Annuity life insurance companies invest your premium dollars in a diversity of investments that are closely regulated by the insurance departments. These long-term investments ensure the stability of the annuity company and help to provide you with a competitive yield.
In the case of premature death, your beneficiaries have the accumulated funds within your indexed annuity available to them, with most companies and may avoid the expense, delay and publicity of probate.Source: www.annuitydefinition.com