Tuesday, February 22, 2005

Crediting Methods in Equity Index Annuities

Oh yes, make no mistake, the index annuity has taken the annuity industry by storm. And just like any investment, there are many options in the index annuity.

The one option I am speaking of now is what is called the crediting method. This is what determines, how much money, if any, you get credited to your annuity. It is the formula the insurance company uses to calculate how much of the market performance you get to take advantage of.

There are many types of crediting methods. There is daily averaging, point-to-point, monthly averaging, etc. You might be asking yourself, what do those mean. Today, my point is to let you know that there are things you need to know.

So as great as an equity index annuity may sound, you need to know how that annuity credits you. And there is a huge difference between these methods. For example, it is totally possible that two different annuities with different crediting methods can perform COMPLETELY different. Based on the exact same market performance, one may credit you 10% and one may credit you ZERO...ON THE EXACT SAME MARKET PERFORMANCE.

My point...don't rush to get an equity index annuity. Take your time and analyze your options before you do. Know what crediting method yours offers and understand the differences. Does it make sense to diversify crediting methods? Yes, it might...but only through educating yourself can you truly make that determination.

Ignorance is NOT BLISS

Tony Bahu

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