Consider Equity Indexed Annuities: Offering Growth with Peace of Mind

(ARA) - Just when you are feeling good about where it's going, the stock market takes another plunge, and you feel that things are out of control. That's when you start losing sleep.

Decisions about your financial future aren't always easy. Most people want to have it all -- security, stability and financial independence. There are many choices available, including stocks, bonds, mutual funds, bank accounts, real estate and the like. Of course, you want your money to grow as fast and as far as possible, but that also can mean taking the risk of losing money, something you may have already experienced.

Now there's a financial vehicle that offers the potential for growth without the pitfalls of some other, riskier alternatives. It's called an "Equity Indexed Annuity," -- EIA for short -- a new generation of the venerable fixed annuity that's been around for decades. According to recent research reports, EIAs are becoming very popular. Industry sales reached a new high in the first quarter of 2002, registering a 72 percent gain over the same period of 2001.

The principle behind EIAs is the ability to receive tax-deferred interest credits based on the performance of major stock market indexes, such as the S&P 500 and the Nasdaq-100. Your interest credits will reflect a portion of actual index gains (usually up to an annual limit), however, unlike stocks, bonds and mutual funds, there's never any direct market risk to your principal. When the stock market goes into a swoon, your principal is safe. There's no guarantee that a market index will always register a gain, but once credited to your policy, your gains are locked in. You will not get 100 percent of market index gains with an EIA, but you shed all the market risk. That can mean true peace of mind.

According to Patrick M. Foley, CLU, ChFC, of Allianz Life Insurance Company of North America, consumers are concerned about safety. "There has been a big flight to safety going on, and people want a floor under their money," Foley said. Allianz Life has led the U.S. industry in the sale of EIAs in each the past two years (The Advantage Group).

EIAs are offered by a number of life insurance companies. Features and benefits vary, but most offer withdrawal features as well as several guaranteed distribution options when it's time to take income. There are many varieties of this new type of fixed annuity, so be sure to shop for the one that fits you best.

To determine whether an EIA is appropriate for you, specific steps are recommended, including:

1. Take stock of your situation by listing your financial assets. Include savings and savings instruments (such as certificates of deposit), life insurance policy values, stock, bonds and mutual fund holdings, real estate equity, retirement plan values and other financial assets.

2. Evaluate how diversified your assets are at present. Do you have too many eggs in one basket?

3. Assess your tolerance for risk. There's no substitute for peace of mind. If the thought of losing money has you sleeping with one eye open, considering safer vehicles with less risk is probably a good idea. An EIA could be a part of the solution for you.

4. Estimate your retirement income needs. Are you setting aside enough now to meet your future goals? Are you taking full advantage of 401(k) opportunities?

5. Determine how your financial assets will be used. College education, purchasing a new home, starting a business, retirement, etc. Being crystal clear about your goals is critical to having your dreams come true.

6. Get professional advice to guide you. For most people, financial planning is not a "do-it-yourself" activity. It's too important to leave to chance.

7. Be sure to ask questions about any financial product or investment vehicle before making a purchase. Insist on full disclosure of all the details, including fees, any surrender charges, interest crediting methods and other restrictions.

For more information on financial planning and other options, contact the American Council of Life Insurers Web site at www.acli.com. For information on EIAs visit www.indexannuity.org or contact an Allianz Life representative at (800) 950-7372.

Courtesy of ARA Content