Equity-Indexed Annuities are complex financial instruments that have characteristics of both fixed and variable annuities. The return earned by investors on equity-indexed annuities can fluctuate – returns are not fixed or guaranteed and thusly carry more risk than a fixed annuity. Many investors are not clearly made aware of this fact at time of purchase.
While equity-indexed annuities usually offer a minimum guaranteed interest rate, any such purported guarantee returns are only as good as the insurance company backing it. Additionally, if you cash out of (surrender) and equity-indexed annuity before its maturity date, significant surrender charges, as well as a 10% tax penalty, could substantially diminish any return an investor might otherwise have expected on an equity-indexed annuity.
Interest rates and rates of return on equity-indexed annuities can be calculated by any number of ways, including participation rates (percentage participation in appreciation of a particular index), spread/margin/asset fee (calculated by reducing the performance of the underlying index by spread/margin/asset fees and costs) and interest rate caps (annuity contract caps can limit of your return, generally stated as a percentage) being the maximum rate of return an investor might possibly earn.
These various methods of calculating the return associated with an equity-indexed annuity are complicated and require considerable assessment before investing.
Equity-indexed annuities are generally designed to be long term investments. Unfortunately, some unscrupulous brokers and sales persons have sold equity-indexed annuities to investors clearly in need of cash flow in a short term.
Also, investors should understand that it is possible to lose money in equity-indexed annuities. For example, if the indexed linked to your annuity declines or if you surrender your equity-indexed annuity before maturity.
If you feel you have been victimized by the improper sale of an equity-indexed annuity, we offer a free initial consultation.
The Law Offices of Timothy J. O’Connor is one of the only law firms practicing securities law in the Tri-City Capital District of Albany, Schenectady and Troy. We also represent victimized investors throughout the rest of New York State, including Buffalo, Binghamton, Syracuse, Watertown, Utica, Kingston, New York City/Manhattan, Long Island, and everywhere in between, as well as in the surrounding states of Massachusetts, Vermont, New Hampshire, Connecticut, and New Jersey.