Bradley P. Halverson, CFA, CPA wrote an article today 20 June 2006 in MeridianMagazine.Com on Equity Indexed Annuities. If I understood him correctly he's not a big fan.
An Equity Indexed Annuity is often marketed as offering stock market returns without the downside risk. The return is linked to something like the S&P 500. It offers a guaranteed minimum return around 3%. HOWEVER, the devil is in the details. What you are really buying is an ordinary fixed annuity with several attached options.
The first option pays the minimum guarantee stated in the contract. The higher the minimum guarantee, the more it costs. The structure of the Equity Index Annuity hides this cost from you. You usually pay for the option with two other options. These options pay you a percentage of the upswing in the equity index and cap the maximum upside you can earn.
