What Is a Fixed Indexed Annuity and How Does It Work?

Educational Resources * Tara Life Annuity Solutions

Fixed indexed annuities are insurance products designed to help individuals accumulate retirement assets with an emphasis on principal protection and long-term stability. These products are often considered by individuals who want to reduce exposure to market volatility while maintaining the potential for interest crediting linked to market indexes.

Unlike direct market investments, fixed indexed annuities do not invest directly in the stock market. Instead, interest is credited based on the performance of a specific index, such as the S&P 500®, subject to contract-defined limits, caps, participation rates, or spreads. The structure of each contract determines how interest is calculated and credited.

How Fixed Indexed Annuities Work

A fixed indexed annuity is issued by an insurance carrier. When funds are allocated to the annuity, the carrier guarantees that the principal will not decrease due to market losses. Interest is credited based on index performance, but gains may be limited according to the terms of the contract.

These products are not designed for short-term use and typically include surrender periods. During this time, withdrawals above a specified amount may be subject to surrender charges. As a result, fixed indexed annuities are generally considered long-term strategies.

Key Features to Understand

Fixed indexed annuities may include features such as:

• Protection of principal from market downturns

• Interest crediting tied to market index performance

• Contract-defined caps, participation rates, or spreads

• Optional riders available at an additional cost

• Tax-deferred accumulation until withdrawals are taken

The availability and structure of these features vary by carrier and contract.

Who May Consider a Fixed Indexed Annuity

Fixed indexed annuities are often evaluated by individuals who prioritize protection, stability, and long-term planning. Suitability depends on factors such as time horizon, liquidity needs, income objectives, and overall financial circumstances.

For a more detailed educational overview of how these products may fit into a broader retirement strategy, visit our Fixed Indexed Annuities page.

Important Considerations

Fixed indexed annuities are not appropriate for everyone. These products typically involve surrender periods, withdrawal limitations, and contract-specific features that should be carefully reviewed. Interest crediting methods, caps, and participation rates are subject to change and vary by carrier and state.

Educational Disclosure

This content is for educational and informational purposes only and does not constitute financial, tax, or insurance advice. Product availability, features, and suitability vary by individual and carrier. Consult a licensed insurance professional for personalized guidance.