FEIA: 1 of 3 – How to RIDE the “Bull” and DODGE the “Bear”


Part 1 of 3:  How to RIDE  the “Bull” and DODGE the “Bear”.

One of the Primary Characteristicsof a Fixed Equity Indexed Annuity (FEIA) is safety of principal provided as a guarantee by the underlying Life Insurance Company.  Additionally, 100% of the premium is credited to the FEIA Account Value (AV) and is the basis for any gains credited to the FEIA.   One of the Investment Choices offered in many FEIA’s is gains linked to the S&P Index.  When the S&P Index rises you participate in the gains, but not necessarily sharing all of the gains.

For example, the FEIA may have caps or participation rates on the gains.  This means, for example, that your gains might be limited to 8% per year or your participation in the gains might be 70%.  Insurance Companies offer a variety of limits on the gains that affect your ROI.  You definitely  want to have expert assistance on the details of the FEIA that you are considering.  In the FEIA world, Riding the Bull means participating in the gains but not receiving 100% of the gains.

However, it is Dodging the Bear that provides the safety and security that is often needed for retirement savings.  The arithmetic of loss is remarkable but often misunderstood.  For example, if you start with $1,000 and lose 20% you have $800.  The next year your $800 investment increases by 20%.  Are you even?  NO.  Your $800 would have to grow by 25% to bring your $800 back to $1,000!

Continuing with the FEIA Dodging the Bear, if the S&P Index drops in value, you do not participate in any of the loss. Thus, your Account Value can go up, but  the Account Value cannot go down.  If the year has a negative S&P, then the AV will be the same as at the start of the policy year.  In a negative market, Zero can be a good return.  Just think back on the end of 2008 and the beginning of 2009.

Thus, with an FEIA, you will participate in some of the gains (Riding the Bull), but not participate in any of the losses (Dodge the Bear). Whether you are in your earning years or receiving retirement funds, an FEIA may be a good fit for some of your retirement funds.  Always seek professional help regarding any annuity choices you might consider.

Coming Soon:  Part 2 of 3  FEIA’s and Surrender Charges.

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