April 30, 2013

Letter to the Editor of Yahoo! Finance Morningstar

Re:       “5 Key Questions to Ask Before Purchasing an Equity-Indexed Annuity” by Christine Benz, 4/25/2013

Dear Editor,

We appreciate Ms. Benz’s effort to educate readers about indexed annuities. We can all agree that the public should be well informed of the benefits and limitations of any financial product they are interested in purchasing.

We too encourage all potential buyers to ask critical questions about the annuity they are considering. Unfortunately, how can they ask these important questions when they are not provided factual information?  The author’s seems more intent on scaring the public away from indexed annuities than from arming them with the facts to help them plan more effectively. Let us provide some of those facts…

There are two types of annuities – fixed and variable. The key difference between the two is investment risk. With variable annuities clients may gain and lose money based on the performance of their investment choices. Fixed annuities do not have investment risk.  An indexed annuity is a fixed annuity as confirmed by Congress, the National Association of Insurance Commissioners and most state insurance departments.  It only differs from other choices of fixed annuities by how the insurance company calculates additional interest above the minimum guaranteed interest.

Basically, the insurance company determines the annuity’s interest by calculating the performance of a market index between two points in time typically covering one year.  The consumer is not investing directly in the market or the index. If the index goes down, zero interest is credited and all prior interest and premium paid into the annuity (the annuity’s value) remains untouched.  That annuity’s value is simply carried over to the next period.  Any interest earned during the next period is added to the annuity’s value and so on and so on compounding interest all along the way.

This zero-percent floor is critical but not the only reason people buy indexed annuities. As questions loom over the future of Social Security, with fewer and fewer defined benefit plans, and more Americans looking for ways to supplement their retirement income, indexed annuities are purchased to provide the peace of mind in knowing your retirement dollars are safe from market volatility and economic crisis. They also want certainty in knowing their annuity provides minimum guaranteed interest and the potential for additional growth from stronger markets.  And, they know that their indexed annuity can provide them with the insurance of income they cannot outlive when the time is right.  As you can see, an indexed annuity can serve as the certain and safe part of a retirement income plan.

NAFA is committed to providing fair and accurate information regarding indexed annuities to the public. To provide your readers with more facts about indexed annuities we encourage you to visit www.fixedannuityfacts.org or call us directly.  Thank you for your time and we look forward to hearing from you.

Sincerely,

Kim O’Brien, President & CEO The National Association for Fixed Annuities (NAFA)

PS:  The insurance companies haven’t referred to indexed annuities as “equity-indexed” for years.  Continuing to use the outdated term only confuses readers as they are not likely to read it in articles not written by the securities industry or in any piece of insurance literature.