Find out the truth about the fees associated with equity-linked Annuities
Does it sound too good to be true! Equity linked indexed annuities offer protection and safety of principal, so ask yourself...How do they do it? It really isn't smoke and mirrors but a very calculated specific product that provides two main ingredients:
· Benefits for the annuity owner and
· Profits for the insurance company
I happen to be one of those people who don't think there is anything wrong with insurance companies earning profit. Profit is what makes our economy roll and is the driving force behind free enterprise. link indexing So when it comes to annuities, what are the actual fees and what is in it for the consumer?
Only common sense will tell you that fees have to exist or the product couldn't prosper. Remember these two concepts:
1. If there are no fees then the annuity will have an earnings cap. That cap is set annually by the insurance company and it protects the company from a runaway stock market. Your funds are not actually invested in the stock market but invested in the general portfolio of the insurance company. The insurance company in turn protects you and your yields by buying future (options) which will become due on your policies anniversary. If the market returned an increased rate of return then the option is cashed and the funds are credited to your account. Simple and easy. The new amount in your account then becomes the fully guaranteed minimum value.
2. The second scenario is if there is no cap (on earnings) then there will be a contact fee. The earnings can be unlimited but before the amount of the actual return is credited, the insurance company will recover the cost of the futures option by subtracting the fee.
There is nothing wrong with either choice because in the end the yields are all designed to be equal. The only event is the time the funds are in the policy and how it relates to market movement. how to index backlink
The only remaining question is how does the insurance company make money? The answer is very simple, they invest your money in their bond portfolio and whatever is made after their operating expenses and your contractual guarantees is theirs. Is anything wrong with this and the answer is absolutely not. It is absolutely no different than how an issuer of a bond uses your money and pays you interest or how a bank operates. They lend out your money, pay you interest and keep the difference. Simple math and simple economics. The more important question is what is in it for you? The answer will depend on your personal situation, annuities can provide income for any length of time even lifetime, the funds avoid probate when a beneficiary is listed and more importantly, your funds are fully secured and never at risk in an annuity.
