Liquidity–meaning cash, or rather the ability to turn an asset into cash–is a consideration for all financial transactions. 
Some assets are considered more liquid than others. For example, bank accounts are liquid because cash or checks (a cash equivalent) are easily moved in and out of the accounts with no penalty. In contrast, real estate is an asset which has to be sold and the sales proceeds are generally cash. Hence, real estate is not considered a liquid asset.
What about fixed index annuities? FIAs are issued in the amount of premium paid. A FIA may be liquidated, with the premium and interest earned turned into cash; however, surrender charges may also apply.
At the heart of criticism against the FIA is the product's liquidity features. Whether a FIA's liquidity provisions are matched to client's needs is determined by needs-based selling and a suitability analysis. Consumers have to understand what liquidity features they need. Producers need to understand how the liquidity features in an FIA work.
When matching liquidity features of an FIA to a client's needs, 3 important considerations include: How is the client going to use the money in the FIA? When is the client going to need access to the money? What amount of money from the FIA is the client going to need?
If the client will need funds from the FIA during the contract term, these 5 key FIA liquidity features often provide answers to the questions of when and how much money the client needs from the FIA.
1) Contract term. This is the number of years that surrender charges apply to a FIA.
The contract term dictates the length or duration of surrender charges. If the contract has a 10-year term, it has 10 years of surrender charges. Likewise, a 5-year term has 5 years of surrender charges. Determine how the client intends to use the FIA funds to assist in deciding on an appropriate contract term (aka, surrender charge period).
2) Maturity date. This is the date when the client will be forced to withdraw funds.
It is perhaps the most misunderstood feature of an FIA. Each FIA carrier has a default maturity date, such as when the client reaches a certain age. This does not mean that the client is denied access to funds before the maturity date. To the contrary, the surrender charge period dictates when full access to funds is available, not the maturity date. Likewise, the maturity date in an FIA can be moved up when the client elects a payout or settlement option.
3) Penalty-free withdrawals. Available on most FIAs, the penalty-free withdrawal means a certain amount of money can be withdrawn from the FIA without surrender charges being applied. Typically, the feature enables policy owners to withdraw at least 10% of the FIA value a year without surrender charges.
But be aware of these points:
