The Pros and Cons of Equity Indexed Annuities
Financial Planning (02/03) Vol. 14, No. 13 p.84; Lloyd, Chris

Equity indexed annuities (EIAs) are very popular in the investment marketplace, particularly with conservative investors, according to this article. EIAs offer a minimum guaranteed interest rate and the possibility of additional interest, but both clients and advisors should be aware that they will not produce the returns they did seven years ago. Companies selling EIAs in adverse conditions extend the term and use averaging to come up with a higher participation rate, and they allow rates and caps to change as well as increase commissions. Advisors should perform due diligence on EIAs by looking for materials and published hypothetical returns based on actual historic index values, being able to define and describe the product, and obtaining a range of hypothetical returns. They should know when the policies mature, and should meet with clients beforehand, the article says.

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