Blogs » Business » Know the Facts About Fees on Equity Linked Annuities

Know the Facts About Fees on Equity Linked Annuities

  • It sounds too good to be true. Equity linked indexed Annuities offer principal safety and protection. So, how does it work? It isn't all smoke and mirrors. This product provides two main ingredients. link indexing

    I am one of those people who doesn't believe there should be anything wrong with insurance companies making profit. Profit is the engine of free enterprise and what makes our economy go. So what are the actual fees associated with annuities and what's in it for the consumer?

    1. An earnings cap will be applied to an annuity if there is no fee. The insurance company sets this cap annually and protects the company against a volatile stock market. Your funds are not actually invested in the stock market but invested in the general portfolio of the insurance company. Your yields and protection are provided by the insurance company, which then buys future options. These options will become due at the anniversary of your policy. If the market returned an increased rate of return then the option is cashed and the funds are credited to your account. It is simple and straightforward. This is the new fully guaranteed minimum value.

    2. The second scenario is if there is no cap (on earnings) then there will be a contact fee. Earnings can be unlimited but the actual return must be credited before the insurance company recovers the cost of the futures option. link indexer

    There is nothing wrong with either choice because in the end the yields are all designed to be equal. The only event is the time the funds are in the policy and how it relates to market movement.

    The only remaining question is how does the insurance company make money? The simple answer is that they put your money into their bond portfolio. After their operating expenses and your contractual guarantee, the company's profits are theirs. Is there anything wrong in this? It is exactly the same as how an issuer of bonds uses your money and pay you interest. They lend money to you, pay you interest, then keep the difference. Simple math, simple economics. The important question is: What's in it for me? The answer will depend on your personal situation, annuities can provide income for any length of time even lifetime, the funds avoid probate when a beneficiary is listed and more importantly, your funds are fully secured and never at risk in an annuity.