F.A.Q. #4 - How does Indexed Interest work with Fixed Indexed Insurance Contracts

Updated: Oct 15, 2020



It is often said in sales “don’t build people a watch when they just want you to tell them the time.” However, with how often these indexed interest insurance contracts are mis-represented – by agents and especially non-agents, I feel that a relatively simple (to me) explanation of how these contracts work can only help – particularly for the ‘engineer’ types.

So, how can these contracts offer principal protection AND market-linked performance?

Which contract would YOU pick?

Years ago, I was with a broker/dealer firm and I sold variable annuities that had lifetime income benefit riders and these contracts directly invested in mutual fund sub-accounts. I had a decent enough knowledge of how these contracts worked and it was before the crash of 2008.

When I compared these variable annuity insurance contracts to some of the fixed indexed annuity insurance contracts, one of the comparisons I would go to was the surrender charge schedule.