Growth Potential Without Direct Market Losses

Learn how indexed life insurance and fixed indexed annuities can provide interest-crediting potential linked to a market index, without directly investing your money in the stock market.

Many people want the opportunity to grow their money but are uncomfortable with the possibility of losing money because the stock market declines.

That is where indexed insurance products can provide a different approach.

Indexed life insurance and fixed indexed annuities are insurance products, not direct investments in the stock market. Your money is not used to purchase shares of the S&P 500 or another market index.

Instead, the insurance company uses the performance of a selected market index as a reference for determining how much interest may be credited according to the terms of the insurance contract.

The basic concept is:

When the applicable index performs positively, you may receive positive interest crediting. When the index declines, an indexed strategy with a 0% floor generally receives 0% index interest rather than the negative market return.

You don’t receive every percentage point of a market increase, but you also don’t directly participate in the market’s negative return.

Why Is That Different From a Variable Product?

With a variable life insurance policy or variable annuity, money can be invested in market-based investment options. When those investments increase in value, you may benefit, but when they decline, you can experience investment losses.

Indexed insurance products work differently.

Your money is not directly invested in the market. Instead, the insurance company provides interest-crediting potential based in part on the performance of an external market index and the terms of your contract.

For example, if the applicable index experienced a negative year, an indexed strategy with a 0% floor would generally receive 0% index interest rather than that negative index return.

That does not mean an indexed life insurance policy’s cash value can never decrease. Insurance costs, policy charges, loans and withdrawals can affect its cash value. An annuity can also be subject to surrender charges, withdrawal provisions and other contract terms.

Why Does Compounding Matter?

Compounding means that when interest is credited and remains in the contract, future interest-crediting can build upon amounts accumulated previously.

In simple terms:

You have the potential to earn interest on amounts that include interest credited in prior periods.

Over a long period of time, compounding can become an important part of accumulating cash value or retirement assets.

Actual results will depend upon the insurance product, the applicable interest-crediting method, contract terms, withdrawals and other factors.

What Is Indexed Life Insurance?

Indexed life insurance combines life insurance protection with the potential to accumulate cash value.

The primary purpose is still life insurance: providing a death benefit to the people or organizations you choose.

Depending upon the type of indexed life insurance and how it is designed and funded, accumulated cash value may also provide financial flexibility during your lifetime.

Indexed life insurance may be considered for objectives such as:

• Family financial protection.
• Long-term cash-value accumulation.
• Supplemental retirement-income strategies.
• Legacy planning.
• Planning for children and grandchildren.
• Certain business-planning needs.

Policy loans and withdrawals can reduce cash value and death benefits and can affect the policy’s ability to remain in force.

What Is a Fixed Indexed Annuity?

A fixed indexed annuity is an insurance contract designed primarily for retirement accumulation and income, not life insurance protection.

You place money with an insurance company, and the contract can earn interest based in part on the performance of one or more market indexes, subject to the terms of the annuity.

Your money is not directly invested in those indexes.

A fixed indexed annuity may be considered by someone who wants to:

• Protect retirement money from direct stock-market losses.
• Accumulate money on a tax-deferred basis.
• Potentially receive index-linked interest.
• Create a future stream of retirement income.
• Potentially establish income that can continue for life, when provided by the selected contract or rider.

Annuities are intended to be long-term products. Withdrawals may be subject to surrender charges, contract limitations and applicable taxes, and withdrawals before age 59½ may generally be subject to an additional federal tax unless an exception applies.

Indexed Life Insurance or an Indexed Annuity?

Although both can use index-linked interest-crediting strategies, they are designed for different primary purposes.

Indexed Life Insurance
Primary purpose: Life insurance protection
Also may provide: Cash-value accumulation and access to available cash value.

Fixed Indexed Annuity
Primary purpose: Retirement accumulation and/or income
Also may provide: Principal protection from direct market losses and options for future income.

For some people, one may be appropriate. For others, the two may serve different roles within an overall financial strategy.

The starting point should not be choosing a product.

It should be asking:

“What am I trying to accomplish?”

Why We Focus on Indexed Rather Than Variable Products

At Be Smart With Your Money®, we focus on insurance-based solutions, including indexed life insurance and fixed indexed annuities.

We do not offer variable life insurance, variable annuities, mutual funds or securities, and we do not provide investment advisory services.

Our approach is to educate consumers about insurance-based strategies that can provide protection, guarantees available under the insurance contract, and the potential for interest crediting without directly investing their money in the stock market.

Understand Before You Decide

Indexed products can be valuable financial tools, but they are not all the same.

Different insurance companies offer different guarantees, interest-crediting methods, surrender periods, policy charges, income options and other contract provisions.

At Be Smart With Your Money®, we believe you should understand what the product is designed to do, how it works, what is guaranteed, and what limitations apply before making a decision.