FIA facts: 10 fixed index annuities truths

3. FIAs are great performers. Many FIAs have outperformed any combination of corporate and government bonds, equity mutual funds and money markets since their inception in 1995, when they were developed as an alternative to mutual funds. 

4. While FIAs do not have the dramatic potential for upside gain as stock market investment, they're also protected from loss – and can actually earn well. "Moderate returns that never experience a loss can outperform the stock market over time," Babbel stated.

5. FIAs have an annual reset feature that automatically resets the annuity's index value at the end of each contract year. This feature ensures that the current year's ending value will become the next year's starting value, and it includes in the value the interest the contract earned during the year. "There's tremendous power in annual reset." However, if an individual doesn't capture the gains, he or she will likely lose them, Babbel said.

6. FIAs provide income an individual can't outlive. And an FIA grows at a guaranteed rate during deferral; the payout is determined by age and value in the income account; the payout continues for life, regardless if the accumulation value is depleted; an individual maintains control of the accumulation value; and finally, an FIA can come with low or no fees.

7. According to the Financial Industry Regulatory Association (FINRA), the index-linked interest rate computed on an FIA depends on the particular combination of indexing features that the annuity uses. These include:

• Participation rates, which determine how much of the gain in the index will be credited to the annuity;
• The spread/margin/asset fee that some FIAs use in addition to or instead of a participation rate. This percentage will be subtracted from any gain in the index lined to the annuity;
• Interest rate caps put on an individual's return. The cap rate is typically stated as a percentage.

8. According to the National Association for Fixes Annuities (NAFA), individuals buy into fixed indexed annuities for a number of reasons, including saving money for retirement, saving money for business partners, loved ones or charities at death, and saving for planned and unplanned expenses.

9. As with all types of annuities, guarantees are backed by the financial strength and claims paying ability of the insurance company.

10. Those who have annuities generally think they're a good deal. According to the 2013 Survey of Owners of Individual Annuity Contracts, conducted by The Gallup Organization and Mathew Greenwald and Associates for the Committee of Annuity Insurers, 9 out of ten annuity owners believe that annuities are an effective way to save for retirement.