How to Make the Most of Maturing Equity Indexed Annuities

Did you invest in equity-indexed annuities a few years back? If you bought one seven years ago, the maturity date may be approaching fast, and you might only have a small window of time to decide whether to renew the annuity or place your money elsewhere. You are likely feeling very fortunate having made a guaranteed investment given what has happened to your friends with mutual funds or stocks.

If you look at what has happened to annuity interest rates and the markets since you bought your equity index annuity, you may understand why the specifications for a new contract might differ. Annuity rates are at a four-decade low, and the markets have swung wildly. Therefore, there's a good chance that you will see lower market participation rates and lower maximums (caps) on amounts credited to your equity index annuities. In addition, you may have to make a longer-term commitment on your new contract.

whereas older contracts may have fixed the participation rate and market cap for the length of the contract, you may find that the renewal contract might now have the ability to change participation and cap rates on the annual anniversary dates. However, this could work in your favor. Because if the equity markets become less volatile, there's the chance that index option premiums will decrease (the index options are a cost to the insurance company), thus allowing annuity companies to offer higher annual participation levels and caps in the next 1 to 3 years on newly issued equity indexed annuities.

Times have changed and many of our investments have as well, and new equity indexed annuities might not be identical to the one you bought before. Nevertheless, it will still provide the same opportunity for tax-deferred growth and the other features that encouraged you to make your original purchase.

Talk to an experienced agent to evaluate your current equity indexed annuity and compare it to the new one that your annuity company offers. Ask the agent to see how it measures up to other annuity companies' products. Pay particular attention to the surrender period and avoid getting locked in for an inappropriate term. Equity indexed annuities have a great return on investment in most cases.

Note: There may be risks with equity indexed annuities that include, but are not limited to, the fact that the return is calculated at the end of the vesting period; often, the investor cannot access cash prior to the end of the vesting period without restriction; each annuity is subject to fees and charges; and withdrawals may be subject to surrender charges. These restrictions have an impact on performance and must be considered when deciding to purchase or exchange the annuity.