Fixed Indexed Annuity (FIA)
A fixed insurance contract whose credited interest is linked to an external index, with a contractual 0% floor on index credits.
Overview
A Fixed Indexed Annuity is a fixed insurance contract issued by a state-licensed carrier. Credited interest is calculated using a formula linked to an external market index (for example, the S&P 500), but the contract holder is not invested in the index. Index credits are subject to caps, spreads, and/or participation rates set by the carrier and which may be adjusted by the carrier on each contract anniversary, subject to contractual minimums. If the index return is negative for a crediting period, the contract credits 0% for that period (the contractual floor). Account value can still be reduced by rider charges and by withdrawals taken during the surrender-charge period.
How it works
- 1Select one or more crediting strategies linked to an external index
- 2When the strategy's index return is positive, interest is credited subject to caps, spreads, or participation rates set by the carrier
- 3When the strategy's index return is negative, the strategy credits 0% (no loss of premium from index movement)
- 4Caps, spreads, and participation rates may change on each contract anniversary; contractual minimums are stated in the contract
Best for
- Individuals seeking principal protection from index losses combined with potential for index-linked interest credits
- Long-term retirement dollars that will not be needed for liquidity during the surrender-charge period
- Allocations to be paired with an optional lifetime-income rider to provide future contractual income
Considerations
- The contract does not directly participate in the index; an FIA is not a security
- Surrender charges (and any market-value adjustment) apply to withdrawals above the free-withdrawal amount during the surrender-charge period
- Optional lifetime-income or enhanced-death-benefit riders carry an annual rider charge that reduces account value
- Withdrawals before age 59½ may be subject to a 10% IRS additional tax in addition to ordinary income tax
Fees & charges
- Most base contracts have no explicit annual contract fee
- Optional income or enhanced-death-benefit riders carry annual rider charges disclosed in the contract
- Surrender-charge schedule and any market-value adjustment are disclosed before issue
Bars show a hypothetical comparison between an unmanaged market index and a sample FIA crediting strategy with a 0% floor and an illustrative cap. Years and figures are illustrative only — they do not reflect any specific contract, carrier, or past performance, and they do not reflect rider charges, which can reduce account value. Past performance does not guarantee future results.
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