Indexed Annuity Magic: How Do They Do It?

One of the greatest mysteries in the indexed annuity market is how insurance companies are able to offer market-linked gains on an annuity with a principal protection feature. Many are familiar with the strong guarantees that fixed annuities offer, but it comes at the cost of low potential for gains. On the other hand, variable annuities provide unlimited potential for gains, but you must be willing to stomach unlimited risk to achieve it.

The indexed annuity is a unique gem amidst a pebble-lined beach – but how is this awesome feat accomplished? How can insurance companies offer purchasers market-linked interest without the risks associates with VAs and still afford to offer a guarantee? It is actually pretty amazing and extraordinarily simple to accomplish.

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