•••••••The stock market experiences difficult times from time to time. The near-term picture for stocks may not be that promising after the market plunges. Many people search for strategies to protect their money during those times.
Millions of Americans turn to fixed annuities as a solution to ensure guaranteed retirement income. But if you are thinking about using annuities as a safety net, it is essential to ask this vital question: How much would you lose if the market collapsed while you had money invested in a fixed indexed and fixed annuity?
Naturally, the answer is zero. One of their significant advantages is the assurance of principal protection offered by a fixed and indexed annuity. When you invest in fixed indexed annuities, the insurance provider promises to protect your funds from declining index values. It has very robust financial safety nets to guard your money.
It wouldn’t matter if the market had a swing like it did in the early 2000s or 2008. Your money will remain unaltered within your annuity contract.
How to Protect and Grow Your Money During a Bear Market
A fixed index annuity is one tool that can help retirement savers in a down market. In addition to providing principal protection, they perform well when the market is down. Fixed annuities aren’t as vulnerable to the consequences of the Fed’s rate reductions as fixed annuities are. With a fixed index annuity, your money could earn more interest than just the guaranteed interest rate.
A fixed indexed annuity is always connected to an underlying financial benchmark, such as the S&P 500 price index. Your annuity earns interest based on a percentage of the growth when the index increases. And if it decreases, the insurance provider merely deducts zero from your account for that time.
Due to declining index values, you will never experience negative interest with a fixed indexed annuity. Your money would remain intact even if a market index changed by a negative 50%.
Is my Money Safe with the Life Insurer?
For every dollar of annuity premium they manage, most life insurers go above and beyond by retaining a dollar and some cents in reserves.
Additionally, the insurance provider invests a large portion of your indexed annuity premiums in conservative, low-risk investments. Frequently, these holdings consist of Treasury securities and reputable business bonds. Over 90% of every dollar invested by insurers goes toward these low-risk interest-earning assets.
Every dollar of the premium for an indexed annuity is invested in call options on the underlying benchmark index for about 3 to 5 cents. The insurance business limits its risk for downside exposure while still providing you with the index’s growth potential.
How is Interest Earned on a Fixed Indexed Annuity?
There are several ways your fixed indexed annuity contract value can increase. Each fixed indexed annuity has a selection of “buckets” that credit interest according to various timeframes.
Your principal and interest earnings are locked in regardless of whether the index shows a negative change for that period of -0.4% or -40%. Their worth won’t change.
How Frequently Do Insurance Companies Fail?
The quick answer is not at all often. You’d think that many insurance companies would have failed during the harsh economic times of the 2000s and the Great Recession.
However, the historical evidence demonstrates that insurance firms’ consistent reserves and other standards provide a substantial safety net. According to a study by Stephen Robb, Paul Della Penna, and Alicia Robb, the average rate of insurance business failure from 1982 to 2010 was about 0.5%.
In the United States, 291 insurance businesses failed between 1982 and 2010. These figures also include health insurance providers.
In comparison, 1985 savings and loan organizations failed in the United States between 1980 and 2010.
Also failing were commercial banks. Bank failures increased during the 1980s due to regulatory failures and severe economic difficulties from the late 2000s to 2010. There were 1,699 commercial bank failures between 1982 and 2010.
Keep in Mind the Financial Stability of the Life Insurance Company
The carrier’s likelihood of going bankrupt is substantially higher if you purchase an annuity contract from a carrier with a financial strength rating below BBB. You can generally feel secure if your annuity contract is with an A-rated carrier.
What happens if you have a fixed or fixed indexed annuity with a business that goes bankrupt?
Depending on your state, you could expect the solvency businesses to repay your money up to at least $250,000.
Contact Information:
Email: [email protected]
Phone: 9182105959
Bio:
Andrew Hinshaw is a Benefits and Retirement Specialist who assists those needing help with figuring out “the next step†in heading toward retirement. He has 28 years of experience in multiple fields of service to the public; the last 8 years, specifically with those retired or close to retirement.
