Fixed Indexed Annuities FAQs

What an FIA is designed to do

FIAs are insurance contracts intended to provide principal protection features and index-linked interest potential. Many strategies credit 0% in a negative index period (subject to contract terms), trading full market upside for structured guardrails.

How interest is determined

Interest credits are based on a defined index strategy and crediting method. The contract’s levers—caps, participation rates, and/or spreads— determine how index movement becomes credited interest.

Why the surrender schedule matters

FIAs are generally best for funds you can allocate for a planned horizon. Withdrawals beyond allowed limits may trigger surrender charges depending on contract design.

Optional income features are separate decisions

Income riders are optional. If income is the objective, evaluate rider fees, payout rules, and start-age options as carefully as the crediting strategy.

What is a Fixed Indexed Annuity (FIA)?

An FIA is an insurance contract designed to help protect principal while offering interest potential linked to an index strategy. In down periods, interest is commonly credited at 0% rather than a market loss (subject to contract terms).

How does an FIA earn interest if my money isn’t invested in the stock market?

Premium is held in the insurer’s general account. The insurer supports index-linked crediting strategies—often using an options budget— to provide interest potential tied to index performance without placing principal directly into stocks.

What are caps, participation rates, and spreads?

These are the levers that translate index movement into credited interest. They determine how much index performance is actually credited.

What does “principal protection” mean in an FIA?

Many FIA strategies are designed so index performance does not directly reduce principal during a crediting period—often resulting in a 0% credit instead of a negative credit (subject to contract terms).

What is a surrender period—and why does it matter?

The surrender period is the timeframe where withdrawals above allowed penalty-free amounts may trigger surrender charges. FIAs are typically best for funds allocated for a planned horizon.

Are FIAs “fee-free”?

Many FIAs have no explicit annual fee for the base contract, but growth is limited by crediting terms. Optional riders—especially income riders— often carry annual fees.

What is an income rider—and what is the “income base”?

Income riders are optional features designed to help provide an income stream (often for life) based on contract rules. The income base is typically a calculation value—not the same as the cash value.

Do FIAs include dividends from the index?

Typically, no. Many annuity index strategies measure price-only returns (excluding dividends), which is one reason FIA crediting does not match direct index returns.

How are annuity withdrawals typically taxed?

Tax treatment depends on whether the annuity is qualified or non-qualified. Earnings generally grow tax-deferred, withdrawals are typically taxed as ordinary income on earnings, and withdrawals before age 59½ may be subject to additional penalties.

Who is an FIA typically best suited for?

FIAs are often considered by pre-retirees and retirees seeking to reduce volatility for a portion of assets while pursuing structured growth potential and/or income planning—accepting crediting limitations.

Contract structure and liquidity

• ✓ Surrender schedule length and charge percentages
• ✓ Penalty-free withdrawal provisions and restrictions
• ✓ How withdrawals affect bonuses and/or riders (if applicable)
• ✓ Any contract adjustments tied to interest rates (if applicable)

Crediting options and renewal mechanics

• ✓ Caps, spreads, participation rates and contract limits
• ✓ Crediting method and how it behaves over time
• ✓ Whether strategies exclude dividends (often yes)
• ✓ How renewal terms can change (within contract provisions)

Income rider evaluation (if income is the goal)

• ✓ Rider fee and what value it’s based on
• ✓ Payout percentage and start-age rules
• ✓ Step-ups/increases and conditions
• ✓ What actions reduce benefits (withdrawals, timing, etc.)

Planning fit and insurer strength

• ✓ Role in your plan (stability, growth, income, legacy)
• ✓ Time horizon alignment with contract features
• ✓ Issuer strength and contract guarantees
• ✓ Integration with retirement income strategy

Crediting Concepts

Liquidity & Income Concepts

“An FIA returns whatever the index returns.”

FIAs typically do not track index returns dollar-for-dollar. Crediting is limited by caps, participation rates, and/or spreads, and strategies often exclude dividends. The goal is structured potential with guardrails—not direct index replication.

“Principal protection means the contract is fully liquid.”

Protection features relate to index performance, not liquidity. Most FIAs have surrender schedules and withdrawal rules. Professional planning keeps near-term cash needs outside surrender timeframes.

“The income base is my account value.”

The income base is typically a calculation value used to determine rider income. It is commonly different from the cash value and usually cannot be withdrawn as a lump sum.

“No explicit fee means there’s no cost.”

Even without an explicit annual fee, contract limitations affect credited interest. Optional riders often have fees. The correct evaluation is whether the design fits the role it’s meant to play in your plan.

Contract & liquidity

• 1How long is the surrender period and what are the charges each year?
• 2How much can I withdraw penalty-free each year, and are there conditions?
• 3If I take withdrawals, what happens to bonuses, crediting, or riders (if any)?
• 4Are there any special adjustments that can apply to withdrawals under certain conditions?

Crediting & expectations

• 5Which crediting method is used (annual, monthly, multi-year) and why?
• 6What are the current cap / participation / spread terms, and what are the contract limits on changes?
• 7Does the strategy exclude dividends, and how does that affect results versus the index?
• 8What is the worst- and best-case outcome within the contract rules over a reasonable period?

Income rider (only if income is needed)

• 9What is the rider fee, what value is it based on, and how is it deducted?
• 10What is the income payout factor at my intended start age, and what reduces it?

Taxes & integration

• 11Is this qualified or non-qualified, and what does that mean for taxes and distributions?
• 12How does this fit with my Social Security strategy and retirement income plan?