Definition of an Equity Indexed Annuity

Benefits

• An equity indexed annuity can provide much higher returns than a standard fixed annuity as the payouts are linked to the return of the stock market. If the stock market does well, then the payouts on the annuity will increase.
  
  

Guaranteed Minimum Return

• One important feature of an equity indexed annuity is the guaranteed minimum return, which puts a floor on the payouts of an annuity in case the index declines. This is important as the return on the stock market is volatile and can experience sharp declines.
  
  

Risks

• The payout on an equity indexed annuity is backed by the credit of an insurance company, not the government, and if the insurance company is unable to pay, an annuity owner may lose his investment. Also, high fees can be embedded in equity indexed annuities, which might reduce the payout for an investor.