In its most basic form, a fixed index annuity is used to ensure that benefits are left behind for the sponsor’s family and loved ones in the event of their passing. Presented in the form of an insurance contract, the policy lets customers benefit from the growth of financial instruments without actually investing in them. Typically, fixed index annuities are regarded as a low-risk product that doesn’t provide huge gains, but offers a guaranteed rate of return and capital protections.
So, this is how it works: you put some money into the policy and your capital grows somewhat in line with the financial markets. But during years with negative market returns, you don’t lose any money. Then, after the plan’s sponsor passes away, the capital (+ interest earned) goes to their beneficiaries. It sounds like a good deal all around. However, a fixed index annuity can do way more than this, especially for people in their mid-thirties and early forties.
Cash Value and Living Benefits
A major benefit to making early contributions to a life insurance policy is that you only need to put aside a small amount every month, and after some years, you have a solid nest egg stashed away. For example, if you only save up $400 every month, you could end up with about $100K in your fixed index annuity after 20 years (assuming a 6.5% return rate over the 20 years). The $100k balance is called the cash value of the policy, and it offers a living benefit to the plan’s sponsor – opening up several possibilities for them.
You could take out a policy loan against thiWhat you do with the money depends on the insurance company that provides your plan and what type of flexibility is available to you, but you can talk to a specialist to get more details. s living benefit, and use it to cover medical expenses or college tuition for your kids – depending on your plan’s administrator. Some providers may even let you withdraw from the amount itself. Because of this, a fixed index annuity has more utility, making it a smart investment for people who would typically not be thinking about retirement or death benefits. Here is something to keep in mind though, you can only take out a policy loan if your living benefit has accumulated to a certain threshold.
How Middle-Aged Customers Can Maximize a Fixed Index Annuity
Now, as someone in their thirties, you have more time to build up a significant cash value and subsequently, take advantage of living benefits. What you do with the money depends on the insurance company that provides your plan and what type of flexibility is available to you, but you can talk to a specialist to get more details. Here’s something else to consider: if you withdraw from your cash value, the interests earned on the balance may be subject to income tax deductions. However, if you opt to only take a loan using the balance as collateral, then no taxes may be charged.
This means several years down the line, you benefit from the decision you made to keep some money aside today. Say you need a little help to complete payment for a medical treatment or you’re looking to contribute to the college fund of your child or grandkids, your living benefit gives you an easy way to do this. And if there’s no reason to take advantage of your cash value, you still get to leave a sizable inheritance to your loved ones.
If you want to learn more about fixed index annuities and how you can make the most of them, we have an insurance planning specialist on hand to have a quick discussion with you. Just click on this link to schedule a quick consultation, it’s free of charge or obligation.
