Equity indexed annuity, EIA, is one of the most complex investments an investor can have and it might not be the most beneficial investment tool for you. Understanding an EIA can be filled with complexities and pros and cons. People often feel stupid or uneasy and don’t ask the right questions or worse – fail to ask any questions, putting all their trust in their insurance agent or broker.

Has this happened to you? Do you have a serious problem with equity indexed annuities?

What is equity indexed annuity?
An equity indexed annuity is a special type of contract between you and an insurance company. During the accumulation period, you can make a lump sum payment or a series of payments and the insurance company credits you with a return that is based on changes in an equity index, such as the S&P 500 Composite Stock Price Index. The insurance company typically guarantees a minimum return. Guaranteed minimum return rates vary. After the accumulation period, the insurance company will make periodic payments to you under the terms of your contract, unless you choose to receive your contract value in a lump sum.

When you signed a contract for an equity indexed annuity were you informed of all the negatives and penalties?
It will take several years for an equity indexed annuity’s minimum guarantee to break even which is why the equity indexed annuity is not a good investment vehicle for baby boomers or retirees. You can lose money buying an equity-indexed annuity, especially if you need to cancel your annuity early. Even with a guarantee, you can still lose money if your guarantee is based on an amount that’s less than the full amount of your purchase payments. The equity indexed annuity is not a friendly investment tool because you may have significant surrender charge and tax penalties if you cancel early.

While some insurance companies call their equity indexed annuities “simple”, it is anything but. One of the most confusing features of equity indexed annuity is the method used to calculate the gain in the index to which the annuity is linked. To make matters worse, there are not one, but several different indexing methods. Because of the variety and complexity of the methods used to credit interest, investors will find it difficult to compare one EIA to another.

The guaranteed minimum return for an equity indexed annuities is typically 90 percent of the premium paid at a 3 percent annual interest rate. However, if you surrender your equity indexed annuity early, you may have to pay a significant surrender charge plus a 10 percent tax penalty that will reduce or eliminate any return.

Have you been taken advantage of regarding your equity indexed annuity?
Could you have an equity indexed annuity lawsuit?