Equity Indexed Annuities have a place in many people's retirement accounts. Unfortunately, they aren't as well known as variable or fixed annuities and customers and sales reps often overlook them because of lack of awareness. Equity indexed annuities provide a method of fighting inflation, participating in the market and still remaining risk free. They offer a base interest rate the company guarantees regardless of market conditions. In this way, they're much like the fixed annuity.

They also track a specific equity index, such as the SandP 500, and give a percentage of the growth to the policyholder if the market increases. The percentage varies from policy to policy. There are difference in the percentage you receive and differences in caps. A cap on the percentage is the highest amount the policyholder gets regardless of the market conditions. Sometimes caps are as low as 8 to 10 percent. Others may top out 20 percent or not contain a cap.

Of course, you'd want a policy that allows as much growth as possible and often people believe that they'll achieve this by securing a policy that has a higher cap. That's not always the case. The higher the cap, the lower the base rate or participation rate becomes. If you have a cap of 20 percent and a participation rate of 50 percent, you won't receive as much income as the man that has a participation rate of 90 percent and cap of 12 percent in most market years.

The higher the base rate, the more you receive in down market years. Depending on the time and market conditions, a lower participation rate with higher guaranteed interest produces a higher return on the policy. Finding the perfect policy for your situation and beliefs is important when you select equity indexed annuities.

Accessing equity indexed annuities to remove only a portion of the money might be available in the policy you select. The amount of penalty free withdrawal varies from policy to policy. You need to find the best one for your situation. Some offer as much as 10 percent cumulative withdrawal each year. That means if you don't use the withdrawal provision one year, it accumulates and allows you to remove 20 percent the next year. Besides policies that use an American equity index, there are those that focus on emerging markets or foreign markets.

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Article Submitted By: JonathanTyler
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