Life insurance in India has been made a federal matter by The Insurance Act, 1938 and Insurance Regulatory and Development Authority Act 1999. Therefore, all the life insurance companies in India have to comply with strict regulations laid out by the mentioned acts, irrespective of whether they are state-owned (LIC) or private (Bajaj Allianz Life Insurance Company, HDFC Standard Life Insurance Company Ltd, ICICI Prudential Life Insurance etc.).
Life insurance boosts confidence in the insured, offers satisfaction of being covered for life, any illness or financial loss. The advantage for the policy owner is the "peace of mind" in knowing that, the death of insured person will not result in financial hardship for loved ones. Uncertainties of life cannot be controlled but, the risks surrounding us can be definitely taken care of like ensuring financial protection on accident or death. Life insurance also protects us from those contingencies that could affect us in a big way and enable the beneficiaries to maintain the same lifestyle even after the unfortunate demise of their loved ones.
Any basic life insurance policy works as under :
To cover the risk of untimely demise of the insured, small sums (monthly/ quarterly/ yearly) are paid to the insurer by the policyholder, called premiums, during the tenure of the policy. In case of death of the insured, the family (or the beneficiaries, as named in the policy) will receive a lump sum amount. In case of maturity of the policy, depending on the type of the policy opted for; returns will be received, which it may have earned over the years. Today, there are many variations to this basic theme and insurance policies cater to a wide variety of needs.
Primary benefits of life insurance
Coverage of death or any critical illness (as mentioned in the 'insuring agreement').
Coverage of financial interests/ needs of the family/ beneficiaries on the death of the policyholder.
Specific tailor made products for catering to different life stage needs (refer chapter 8 for different types of needs and their calculations).
Inbuilt wealth creation propositions under several products, providing dual benefit to the customer.
Availability of different types of retirement plans.
Loan facilities against various plans.
Life insurance premiums offer tax saving benefits.
Hence, life insurance occupies a unique space in the landscape of investment options to a customer and different life stage benefits to the beneficiaries.
TYPES OF LIFE INSURANCE POLICIES
As we have seen, life insurance plays a very important part in anybody's life as it covers the risk of dying early and protects the family in case of demise. The insured money will save the family in different stages of life, either it is for educating the children or daughter's marriage etc. Non-earning years of life which is called retirement is also covered by the insurance. Insurance policies fall into many categories (see exhibit 1 & 2), hence, choosing the right policy type with the right amount of coverage becomes very critical. Some of the parameters for classifying them include premium amount, benefits covered, number of years and other regulations which govern the policy.
Life insurance policies vary from company to company but, none of them will be contradicting the principles of life insurance contract, however, the degree of variance is minimal. Given below are the basic types of life insurance policies, whereby, all other policies are built up by combination of various features considering major causes of deaths in India (see exhibit 3) :
Term Life Insurance Policy
Group Term Life Insurance
Level Term Life Insurance
Permanent Life Insurance
Whole Life
Universal Life
Variable Life
Variable Universal Life
Premium Life
Survivorship Life
Endowment Policies
Money Back Policy
Annuities and Pension
Group Insurance Policies
ULIPS
Exhibit 3 : Major causes of deaths in India
Coronary Heart Disease
13.88
Suicide
2.39
Diarrhoeal disease
12.06
Liver Disease
2.31
Lung Disease
11.00
Road Traffic Accidents
2.19
Stroke
09.21
HIV/AIDS
2.05
Influenza & Pneumonia
07.45
Peptic Ulcer Disease
1.20
Tuberculosis
03.11
Hypertension
1.86
Source : worldlifeexpectancy.com/country-health-profile/India
Term Life Insurance Policy
"A term insurance policy is a pure risk cover policy that protects the person insured for a specific period of time".
A type of insurance policy, in which, the insured pays a fixed sum for a specified term. This sum remains constant and the policy does not accumulate any cash value. 'Term' is generally considered 'pure insurance', where the premium buys only protection in the event of death and nothing is received on the maturity, hence, the premium charged is very nominal. While purchasing this policy, the insured has to undergo various medical checkups and in case of any hazards like; health hazard (increased BP, heart problems etc.), the premium will be charged extra by the name 'health extra'. In case of occupation hazard (risky jobs), again the premium is charged extra by the name 'occupation extra'. It is to be noted that the extra charged premiums will be purely at the discretion of the underwriter. The policy can be renewed when expired but at revised rates of premium which can be too high. The policy is highly recommended for the salaried youth and middle men. Another classification in term life insurance is 'whole term insurance policy' where the insured pays the fixed amount throughout his life. There are three key factors to be considered in term insurance :
Face amount (protection or death benefit),
Premium to be paid (cost to the insured) and
Length of coverage (term)
The objective of this policy is to protect the policy holder's family in case of death. Here, the fixed sum of money called the 'sum assured' and is paid to the designated beneficiary. For example; if a person buys a policy of Rs. 2 lacs for 15 years, his family is entitled to the sum of Rs 2 lacs if he dies within that 15 year period. If he survives beyond 15 years, he will not get any amount from the insurance company and the premiums paid are not returned back.
which will be comparatively lower, as now it covers only risk component and not savings/ investment)
Some term insurance policies also carry convertible option, known as 'convertible Term Insurance Policies'. Here, the insurer has the option of converting the term policy to normal endowment policy (explained under the head 'endowment policies' later in this chapter) after a certain period of time say 5 or 6 years (the clause depends on company to company). As the policyholder is getting the policy converted to normal endowment policy, now the fresh premium will be calculated as per endowment policy. The benefit of this policy is that when the policy gets converted, the insured does not undergoes any medical checkup even if the his present health condition is not good.
Term Endowment
'Suicide' used to be excluded from all insurance policies. However, after a number of court judgements, many insurers began awarding payouts in the event of suicide (except for cases where it can be demonstrated that the insured committed suicide solely to access the policy payout). Generally, if an insured person commits suicide within the first two policy years, the insurer will simply return the premiums paid as a compromise, but, after this period, the full death benefit may be paid.
Group Term Life Insurance - Insuring a group of individuals together. This may be done due to their working in specific group such as partners, employees of the same organization or being members of a particular organization formed for a specific purpose. In case the insurance is taken for the employees by their employers, the employer is supposed to pays the premiums either from his pool or by deducting the right amount from the salary of individual employees. In group insurance you have the facility of converting your policy to another which is not available with other insurance policies. So as an insurer you are given the freedom to choose the policy as per your choice. Group term life insurance provides lot of benefits but it cannot be solely relied to meet one's insurance needs. Policy is gaining significance in the many developing countries.
Level term Life Insurance - An insurance which asks to select a particular period and then premiums are paid for that period. The policy, by design matures on the attainment of that period. Once the term is selected say 5, 10 or 15 years, it cannot be revoked. The policy is ideal for those, who do not make long term financial plans.
Merits of the Term Life Insurance Policy
Financial security of a person.
Payments (premiums) are fixed and do not increase during the term period.
A low salaried person can also go for high value insurance policies as the premium is affordable.
The policy is intended to provide hundred percent risk coverage; no additional charges other than the basic ones. Hence, the premiums are lowest in the life insurance category.
The policy can be customised with the addition of different riders (explained later in this chapter), such as waiver of premium or accidental death.
Can be kept as collateral/ mortgage with the banks in case of loan.
The premiums paid are exempt from tax.
Drawbacks of the Term Life Insurance Policy
Covers risk only during the selected term period.
No survival benefit, only death benefit.
The premiums are directly proportional to age of the person. They get increased with the age and become unaffordable over 60 years.
If the premium is not paid within the grace period (as per the specification of the insurance - explained later in the chapter), the policy could lapse without acquiring any paid-up value.
The revised rates (in case of renewal of policy) of premium are very high.
Policy is not suitable for savings or investment.
Points to Ponder
We are highly educated with honours from esteemed universities but still bad managers of our money because most of the times we tend to rely on "someone else" for our financial planning and investments. This "someone else" in insurance industry can be directly related to an agent or so-called insurance planner of XYZ company while choosing Insurance. Most of the time these agents exploit our financial illiteracy to their benefit, they tend to trap us by advising policies which earn them higher commission and completely ignore our needs. If we have to avoid being prey for their trap, financial literacy is most important for each and every one of us. On this note, answer to the 10 amazing facts being presented below which one must know about the term insurance :
Which is the simplest form of life insurance ?
Which is the best form of life Insurance ?
Which is the most basic and purest form of life insurance ?
Which is the cheapest form of life insurance cover ?
Which life insurance plan is easiest to compare ?
Which is the most affordable form of life insurance ?
Which life insurance plans your agent or advisor refuses to discuss or discourages you to buy ?
Which life insurance plan is easiest to terminate ?
Which insurance plan is the least sold ?
Which is the best gift you can ever give to your family ?
Interestingly, answers to all the above 10 questions is 'Term Plan'.
Isn't it amazing? So, despite being the best form of life insurance, why the term policies are least sold ? Why only a few people are aware of them ? The only drawback is, there is no survival benefit. This fact is difficult to digest and consequently taken advantage of by the insurance agents to misguide people about the true purpose of life insurance.
The decision should be made considering whether the person expects to receive the money back on the comprehensive insurance cover bought for his/her car or bike ? It is similarly with the pure form of life insurance. It is to be noted that life insurance is basically for eventuality and not for certainty. Now, the person should thoughtfully decide which life insurance plan should he/ she opt for ?
Permanent Life Insurance
"In a Permanent Life Insurance contract, a segment of the money paid as premiums is invested in that type of fund which earns interest on a tax-deferred basis. Thus, over a period of time, these investments are supposed to accumulate increased cash values which the policyholder will be able to get back either during the period of the policy or at the end of the policy or at intervals, depending on the nature and design of policies".
The need for life insurance can change over different stages of life. Therefore, a person should evaluate the circumstances and the standard of living he/ she wishes to maintain for his/ her dependents. The life insurance premium is based on the type of insurance bought by the policyholder and the chances of death while the policy is in effect. This type of policy not only provides security to the dependents (payment of death benefits upon policyholder's death), but also, enables the policyholder to use some part of the money when he/ she is alive or at the end of the policy. The premiums of such policies can, not only be expensive but also if not paid on time can lapse the policy. Hence, in order to take full advantage of the policy, it is important to pay the premiums on time and designate the nominee. These policies can also help in fetching some tax saving benefits.
This policy demands regular payment of premiums till the time the policyholder desires to terminate the policy, irrespective of the fact that, the premium amount exceeds the amount to be distributed to the dependents in case of death. This surplus will be deposited in a separate account by the company and at times will yield higher return if the company performs well, out of which a share of the profits is periodically dispatched to the policyholder. Now, it is at the discretion of the policyholder whether to raise loans out of those funds or accumulate them back in the account. If the holder of the policy decides to end the policy, he/ she will be paid back the surrender value but, if he/ she decides to retain the profits made from the investments, then he/ she holder is not required to pay the income tax for that amount. There can be a possibility like, when a certain amount of money is withdrawn within the given limit he/ she need not pay income tax for that amount. But when the money is deposited in the bank he/ she has to pay the income tax irrespective of the fact that the money is utilized or not. Some examples of such policies are : whole life, universal life and variable-universal life.
However, it is advised not to choose permanent insurance if the motive is solely investment and tax exemption. In that case, it is always advisable to invest in some form of cheap investments and make use of other financial instruments for saving tax because the basic objective of insurance is neither investment nor tax exemption.
The various types of permanent life insurance are as follows :
Whole Life - As the name implies, this insurance policy is taken for the life term of an individual and the policy holder has to pay the premium for whole life till his death. These policies have no fixed end date; only the death benefit exists and is paid to the named beneficiary. The policy holder is not entitled to any money during his or her own lifetime. This plan is ideal in the case of leaving behind an estate.
Primary advantages of whole life insurance are guaranteed death benefits, guaranteed cash values, fixed and known annual premiums, mortality and expense charges that will not reduce the cash value of the policy. Second, this policy helps the insured to make a substantial investment; however, the returns are not that high, but, earn a higher interest than commercial banks. Third, the insured is eligible to earn tax exemptions. Fourth, the insured continues to be a beneficiary till the end of his life once he successfully completes paying premiums.
The major disadvantages of whole life are inflexibility of premiums and the fact that the internal rate of return in the policy may not be competitive with other savings alternatives. Second, this policy, however, fails to address the increasing needs of the insured and the additional needs during his post-retirement years. While the insured buys the policy at a young age, his requirements increase over a period of time. By the time he dies, the value of the sum assured is too low to meet his family's needs. As a result of these drawbacks, insurance firms now offer either a modified whole life policy or combine it with another type of policy. This kind of policy is neither very popular nor is suggested by the insurance companies.
Universal Life - The insured is required to pay a limited sum of money for a fixed period. The amount of premium paid is constant, like that of a term life insurance policy. Similarly, the benefits reaped resemble a 'whole life insurance' policy.
Variable Life Insurance - The insurance company invests the premiums in multiple options. These policies are said to be risky as the returns are based on the performance of stocks in the share market. These policies yield great returns when the financial markets perform exceedingly well.
Variable Universal Life Insurance - Variable Universal Life Insurance is a combination of universal life insurance and variable life insurance. The insurer pays the premiums as in a universal life insurance. Similarly, the coverage falls in line with a universal life insurance. The insurance company uses the funds of policyholder for investing them in the stock market. The terms of investment in a variable universal life insurance policy are the same as variable life insurance.
Premium Life Insurance - This policy enables the policyholder to obtain insurance on payment of premium at one stroke. However the amount is quiet expensive and also decided on the basis of your age. This policy is highly recommended for people intending to invest in insurance for the purpose of wealth creation. This policy does not involve any risks because the payments are made at a stretch and the likelihood of not paying the future premiums does not arise.
Survivorship Life Insurance - It is also called as "second-to-die" or "survivor insurance". This policy provides one policy that insures the lives of two people, usually spouses. No proceeds are paid on the death of first spouse but the policy remains in force but, the premiums may need to be paid. The death benefit is not paid to the beneficiary until the death of the second insured.
Endowment Policies
"These policies provide periodic payment of premiums by the insured and a lump sum amount (claim) is received in return either in the event of death within the policy's term or on the date of expiry of the policy in an event of the assured surviving the policy's term, whichever occurs earlier".
These are the most popular life insurance plans among other types of policies. These policies combine risk cover with the savings and investment. In case of endowment assurance, the term of the policy is defined for a specified period say 15, 20, 25 or 30 years known as 'endowment period'. Combining risk cover with financial savings, endowment policies are the most popular policies in the world of life insurance.
The advantages of these policies are; if the policy holder survives after the completion of policy tenure, he receives assured amount plus additional benefits like bonus from the insurance company. Second, in addition to the basic policy, some insurance companies also offer various benefits like double endowment and marriage/ education endowment plans. Thus, the costs of such policies are comparatively higher but worth the value. Third, the policies are ideal if the person has short career path and further he/ she hopes to enjoy the benefits of the plan (the original sum and the accumulated bonus) in his/ her life time. Fourth, the policy holder receives huge amount while completing the tenure. Fifth, endowment plans are especially useful when a person retires; by buying an annuity policy with the sum received; it generates a monthly pension for the rest of his/ her life.
Money Back Policy
"In a money-back plan, the insured keep getting a percentage of the sum assured during lifetime of the policy. In case the insurer outlives the term, he/ she get the remaining corpus with accrued options like bonus. In the event of his/ her death before the full term of the policy, his/ her nominee or legal heirs get the sum assured irrespective of the number of instalments received, with accrued benefits".
Let us understand the above statement by an example; if the money back policy for sum assured of Rs. 5 lacs, matured after 20 years. Survival benefits of 20 % each had been paid at the end of 5th, 10th, 15th and 20th years. What will be the maturity claim amount if the insured survives till the end of the policy.
5 10 15 20
100000/- 100000/- 100000/- 200000/-
+ Bonus
'Suicide' used to be excluded from all insurance policies. However, after a number of court judgements,
The example clarifies the survival benefit :
The amount paid intermittently will be deducted from the total amount, which will be paid at the end of the term.
Bonus will be paid for the full period (20 years), this adds to the charm of the policy.
Refer the same example above. Now consider, if the insured dies during the term of the policy say 17th year. Then what will be the claim amount ?
5 10 15 17 20
100000/- 100000/- 100000/-
500000/-
+ Bonus (till 17th year)
+ Bonus
The example above clarifies the Mortality Benefit :
The amount paid intermittently will not be taken into account.
Bonus will be paid only for that period for which premium was paid.
A unique feature which is associated with this type of policy is that in the event of death of the insured during the policy term, the designated beneficiary will get the full sum assured without deducting any of the survival benefit amounts, which have already been paid as money-back components. Moreover, the bonus on such policies is also calculated on the full sum assured but will be paid only till the period for which premium was paid.
Money back life insurance policies are very popular among traditional investors who seek financial instruments that provide insurance and investment, with a low risk element and guaranteed returns. This type of policy is perfect for individuals who are in their late 30s or early 40s and are looking at significant payouts after 10-15 years to fund their children's higher education, marriage and other expenses. Money back policies create a long-term savings opportunity with a reasonable rate of return, especially since the payout is considered exempt from tax, except under specified situations.
This is the costliest life insurance available in the market, mainly because there is a pay-back component built into it. It differs from the endowment policy in the sense that in the later, the survival benefits are payable only at the end of the endowment period and cannot be used as collateral in case of loan (as the money is withdrawn intermittently). You can choose to receive parts of your sum assured as 'pay backs' at certain points in time in your insurance plan tenure. Insurers are bound to pay these sums no matter what happens; they need to make sure that the money is available with them during those periods, so, they invest a portion of the premiums received in such instruments that earns them a good return. Since such investments come with risk attached, this is passed on to you in terms of higher premiums.
The primary advantages of money back insurance policies are; that they help us to plan our finances in a very systematic way by guaranteeing a regular flow of income at fixed stages in our lives and are best for those who are looking for a product that provides both - insurance cover and savings. Second, other than providing an insurance cover, it provides regular income, tax benefits and bonuses; thus the plans serve as a secure and safe investment decision. Third, these plans are very good for conservative investors who are looking for good returns but with an element of guarantee and above mentioned benefits. Fourth, a money back insurance policy can be used effectively to plan for your child's higher education or marriage, purchase a car or even to pay the down-payment for your dream house or perhaps you can re-invest the amount. Fifth, by investing small amounts every year, you can be rest assured that you will receive a large sum of money after every 5 years (defers company to company). Sixth, it works like your small piggy bank in which you keep making small investments. Seventh, inflation becoming a matter of concern, companies have realized that sometimes the money value of the policy is eroded. That is why with-profit policies are also being introduced to offset some of the losses incurred on account of inflation. It carries one disadvantage that they have higher premium as compared to other insurance policies.
To consider before buying money back policy
It is advisable to read the terms and conditions thoroughly. You should carefully check out the actual allocation of amount towards the premium (bifurcation of amount which is going to be accumulated and amount towards insurance company's charges).
Make sure that the periodic payouts are sound enough to meet your anticipated needs. You can analyze the past performance in terms of declared bonuses. Though the past is not necessarily an indication of future performance, still it gives a fair idea of the insurance company's commitment to its policy holders.
Annuities and Pension
"Annuities are just opposite to life insurance. The function of an annuity is to protect against risks as well as provide money in the form of pension at regular intervals".
Basics differences of Annuity and Pension
Annuity and pension, both are funding schemes after retirement. Though major chunk of the population do not consider any difference between the two, however, they have some basic differences that include funding schemes. If considered in totality, pension scheme is more popular and known.
Pension is the financial benefit received by the individuals after they have retired from service, whereas; annuity is also a pension scheme but for availing it there is no need for a person to get retirement.
A difference that can be seen between pension and annuity is majorly in the payment amount. Pension is determined by the sum that one has earned during his service and adjusted for the duration of his career, whereas; annuity is a system that is determined by the amount of investment made by a person towards the scheme.
The differentiation is also between the sum paid. Lump sums are generally included in pension scheme but they are given on a monthly basis, whereas; a person can get lump sum amounts if he has enrolled in annuity scheme.
Though the sum given in pension and annuity is fixed with variation calculated on the basis of cost of living standards, some annuities pay more or less of the amount depending upon the investments the persons have made.
Pension given to a person is normally converted into a family pension after his demise, whereas; annuity is paid in three categories - single life annuity, joint annuity and survivor annuity.
Annuity can be bought from any insurance company but pension is one that cannot be bought. Pensions are generally given for government jobs.
What is an annuity?
An annuity provides you with guarantee of lifetime payments. You buy an annuity using a lump sum from your pension or, perhaps, some savings. Annuities remove the worry of having to budget for an unknown period of time. It is actually the contract or the deal between the investor and the insurance company. The insurance company is involved in promising something good with the money of the investor. It either helps to grow the money or pays the money out after a certain period of time. You must always remember that insurance is an essential part of your investment. Pros and cons of the pattern must be known if you are interested in annuity insurance. The annuities provide guaranteed rates for the return on the dollar you invest and are very useful to those who desire to provide a regular income for themselves and their dependents after the expiry of a specific period.
A person entering into an annuity contract agrees to pay a specified sum of capital (lump sum or by installments) to the insurer. The insurer in return promises to pay the insured a series of payments not in one lump-sum but by monthly, quarterly, half-yearly or annual installments which are paid either until insured's death or for a specified number of years. Generally, life annuity is preferred by a person having surplus wealth and wants to use this money after his retirement. Insurance companies majorly offer two types of pension plans :
Endowment Plans - the money is invested in fixed income products which are supposed to be less risky in nature, so, the rates of return are comparatively lower, as return is directly proportional to risk.
Unit Linked Plans (ULIPs) - more flexible in nature; even if the policyholder stops contributing may be after 10 years, the fund will keep compounding and creates corpus till the vesting date. These plans were introduced by the private players and are widely accepted because they combine the benefits of life insurance policies with mutual funds. Though a certain part of the premium is invested in listed equities/ debt funds/ bonds and the balance is used to provide for life insurance and fund management expenses. As per the risk appetite of a person, one can also opt for higher exposures in the stock market. However, lower risk options like balanced funds are also available.
Annuities can prove to be beneficial in terms of your investment like they offer the tax deferred growth of your money. But, at the same time there are certain features of the annuities which might prove to be unhealthy for your investments, like; some of the deals might have surrender period which may tie up the money for a longer period of time or some might be overused in the banks. For this reason, it is always suggested to find out the details about the company rules regarding the annuities, before you make an investment. Majorly, there are three annuity insurances available; fixed, variable and indexed which have some common characteristics in them.
Fixed Annuity
Annuities that make payments in fixed amounts or in amounts that increase by a fixed percentage are called fixed annuities. During the time when your account is growing, the insurance company agrees to pay no less than a specified rate of interest. The company also agrees towards the periodic payments of specified amount in your account which may last for a definite period, such as 20 years, or an indefinite period, such as your lifetime or the lifetime of you and your spouse. The investments are usually made in government securities and corporate bonds, they do offer a certain rate of return over a defined period. Fixed annuities are interest-based vehicles similar to bank-issued CDs, but geared specifically towards retirement savings. They have very low risk, have more liquidity than CDs, are tax-deferred and typically offer higher yields than bonds, CDs, treasuries or money market accounts. Fixed annuities are not securities and are not regulated by the SEC (Securities and Exchange Commission). One of the advantages of this investment is that the money is free from any kind of risks because of the fluctuations in the market.
Variable Annuity
Variable annuities, by contrast, pay amounts that vary according to the investment performance of a specified set of investments, typically bond and equity mutual funds. Variable annuities allow you to invest is different kinds of portfolios that are tied to the performance of the market. You can choose the type of investments that you have with variable annuities from conservative to aggressive investments. You can switch between your investments during the time that you have the annuity and you can make more investment choices than you can with a fixed annuity. Investors who have a good understanding of the market and investing can choose to work with the variable annuity if they want to try to build up their investments and make more money, but those who are not as familiar with the market and want to have a secure retirement account often choose the fixed annuity. Variable annuities offer an opportunity for the market growth with the help of fund investing and are securities regulated by the SEC. This kind of insurance is for long term. The longer you keep your money the more it will grow. Finally when you receive the money you will be the gainer. On the other hand the variable annuities also have an effect on the principle because of the market fluctuations. Here, you can choose to invest your purchase payments from among a range of different investment options, typically mutual funds. The rate of return will vary depending on the performance of the investment options you have selected, on your purchase payments and the amount of the periodic payments you eventually receive. The longer you let your money build, the more you are likely to gain from it. However, unlike a fixed annuity (where your money sits in an account from which you are paid a fixed income throughout a fixed period), a variable annuity gives you more control over your investment-but also gives you the burden of risk.
Variable annuities are used for many different objectives. One common objective is deferral of the recognition of taxable gains. Money deposited in a variable annuity grows on a tax-deferred basis, so that taxes on investment gains are not due until a withdrawal is made. Variable annuities offer a variety of funds ("subaccounts") from various money managers. This gives investors the ability to move between subaccounts without incurring additional fees or sales charges.
Equity Indexed Annuity
Indexed annuities are hybrid between fixed and variable. An equity indexed annuity is an insurance contract which is linked to a common market index, such as the S&P 500. These annuities are popular amongst the people those who want growth potential of a variable annuity, but with less risk. Unlike fixed annuities, rates of index annuity varies, based on market performance and unlike variable annuities, losses are typically covered. This type of annuity gives you a win-win situation whereby, if the index grows you are entitled to a majority of the earnings and if the index declines, your account is protected against losses with a modest baseline rate. The annuity insurance can be chosen according to the personal requirements. It is advisable that you should always try to consult an expert before investing in it.
