Maryland Fixed Indexed Annuities
Fixed Indexed Annuity Rates and Quotes for residents living in Maryland, D.C. and Virginia
Comrade Financial Group can help you with your many choices and carrier options that best fit your needs with products like Fixed Indexed Annuities in Maryland, DC and Virginia.
Fixed Indexed Annuities are a type of annuity that grows at the greater of a) an annual, guaranteed minimum rate of return; or b) the return from a specified stock market index (such as the S&P 500®), reduced by certain expenses and formulas. At the time the contract is opened, a term is chosen, which is the number of years until the principal is guaranteed and the surrender period is finished. In a robust stock market, you will not achieve the actual performance of the index due to the formulas, spreads, participation rates, and caps applied to fixed-indexed annuities, as well as because of the absence of dividends (see below). However, in a down market you won’t ever lose principal (provided the underlying insurance company stays solvent, and to date no insurance company has ever failed to pay out on a fixed annuity). Many investors find that fixed-indexed annuity returns more closely approximate CDs, traditional fixed annuities, or high grade bonds, but with the potential for a small hedge against inflation in an up market.
Fixed vs. Fixed-Index Annuities
Technically speaking, fixed-indexed annuities are a type of fixed annuity. But a fixed-indexed annuity is different than a standard fixed annuity in the way that earnings are credited to the annuity. For a standard fixed annuity, the issuing insurance company guarantees a minimum interest rate. The focus is on safety of principal and stable, predictable investment returns. With fixed-indexed annuities, the contract return is the greater of a) an annual minimum rate, or b) the return of a stock market index (such as the S&P 500®), reduced by certain expenses and formulas. If the chosen index rises sufficiently during a specified period, a greater return is credited to the owner’s account for that period. If the stock market index does not rise sufficiently, or even declines, the lower minimum rate is credited (usually 0% – 2%). The owner is guaranteed to receive back at least all principal less withdrawals (provided of course that the owner has held the contract for the minimum period of time specified in the contract).
Participation / Index Rates
The participation rate, also known as the index rate, is the percentage increase in the index by which a contract will grow. For example, if the participation rate is 75% for a fixed-indexed annuity that is based on the S&P 500®, and the S&P 500® increases 10% for the year, the contract would be credited with 7.5%. The participation rate is usually less than 100%. The participation rate will vary based on length of the term and on your contract. Note: Dividends are never included in the total return of fixed-indexed annuities. For example, if the S&P 500® was up 10% based on the points gain of the market, the total return may actually be higher once you factor in dividends. Over time dividends have made up as much as 40% or more of the total return of the S&P 500®. It is important to know that you will be forgoing dividends in exchange for principal protection on all fixed-indexed annuities.
Floor & Cap Rate
The floor refers to the minimum guaranteed amount credited to the account. At the time of this writing (see Update date at the bottom of this page), this rate is almost always between 0% – 2%. The cap rate is the annual maximum percentage increase allowed. For example, if the chosen market index increases 35%, and the contract has a 10% cap, the increase will be limited to 10%. Some contracts do not have a cap rate (these tend to have a lower participation rate, such as 30% to 50% compared with 75% to 100% for a plan with a cap rate). The cap varies depending on the length of your term — fixed-indexed annuities with longer commitment periods (surrender periods) tend to have a higher cap rate, whereas annuities with shorter surrenders periods tend to have a lower cap rate. NOTE: The cap may reset annually and is subject to change at each renewal.
Index Credit Period
There are four basic ways in which amounts are credited to an owner’s contract at specific points in time:
- Annual reset: this measures the change in the market index over a one-year period.
- Point-to-point / term: similar to the annual reset, but the period is usually five to seven years.
- Annual high water mark with look back: the highest anniversary value is used to determine the gain.
- Monthly Averaging: you have 12 “month-a-versary” points throughout the year, and at the end of each year the insurance company adds them up and divides by 12.
- Inverse Performance Trigger: The method of crediting the account in which the allocation of assets was hedged against the market whereas if the market or index either performed at zero or at a negative performance, the account will be credited with a set rate of return per the contract.
While there are no up-front commissions charged when purchasing a fixed-indexed annuity, depending on the product, the caps, participation rates, and spreads can be onerous. Surrender charges may be imposed if withdrawals in excess of a certain amount are made (usually 10% per year) or if the contract is surrendered completely. Surrender charges can be as high as 10% on non-bonus contracts and 22% on bonus contracts. Surrender charges typically decline over time, usually by 1% per year.
Some fixed-indexed annuity contracts offer, as an optional feature and for an additional fee, a guaranteed death benefit and/or a guaranteed lifetime withdrawal benefit (GLWB). In the death benefit, if an annuitant dies before annuity payments begin, the contract will pay the named beneficiary(s) the greater of the investment in the contract (less any withdrawals), usually compounded at 4% to 5% annually through the date of death. With the GLWB, the principal will usually compound at 6% to 8% for a minimum of 10 years, at which point the owner can begin to withdrawal (usually 5% at age 65, for life).
Inverse Performance Trigger
Some carriers have an asset allocation option of hedging against the market or index by allowing you to place a portion of your investment in an account that will pay up to 3-4% if the market has a negative performance or a zero performance. So in summary, If you placed 20% of your assets in an account using the Inverse Performance Trigger and the market has a zero performance, you just made 3-4% on the 20% of funds placed in that account. For more information, please email or call so i can send you the brochure.