Fixed index annuities combine the reliability and predictability of a fixed annuity with the ability to benefit from stock market trends inherent in index annuities, which rely on a stock market index like the Dow Jones Industrial Average or the Standard & Poor's 500. Individuals that opt for fixed index annuities have the security of a fixed annuity with the upside potential of an index annuity.
It appears that the public is catching on to the benefits of FIAs, as sales have been increasing steadily and sharply over the past several years. According to Wink Inc., provider of competitive intelligence to the life insurance and annuity industries, industry sales of FIAs for 2014 were nearly $46.9 billion, up 18 percent from 2013 levels.
Further, according to LIMRA Secure Retirement Institute (LIMRA SRI), even though total U.S. annuity sales dropped 7 percent in the first quarter 2015 over same-quarter 2014, sales of FIAs soared to $11.6 billion for the first quarter 2015. This represents a 3 percent increase over first quarter 2014 sales. Notes LIMRA SRI, FIA sales for the first quarter of this year marks the eighth consecutive quarter sales increased for the product.
Brisk sales may have something to do with the public's recognition of FIA major benefits. Some FIA offerings can provide the following advantages:
Tax Advantages: Interest that accumulates in a FIA is tax deferred. Individuals don't pay taxes on the interest until they begin receiving payouts, typically at a lower tax rate if he or she has retired.
Interest rate guarantees: The interest rate on an FIA is guaranteed to never fall below a set minimum.
