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Equity-Indexed AnnuitiesAre you considering buying an equity-indexed annuity? This brochure explains equity-indexed annuities and provides resources for obtaining additional information. Also, the Commission recently proposed a rule that would, if adopted, define the terms “annuity contract” and “optional annuity contract” under the Securities Act of 1933. The proposed rule is intended to clarify the status under the federal securities laws of indexed annuities. The proposed rule is available here. The Commission has reopened the comment period until November 17, 2008. That release is available here and comments may be submitted here. What is an equity-indexed annuity?An equity-indexed annuity is a special type of contract between you and an insurance company. During the accumulation period – when you make either a lump sum payment or a series of payments – the insurance company credits you with a return that is based on changes in an equity index, such as the S&P 500 Composite Stock Price Index. The insurance company typically guarantees a minimum return. Guaranteed minimum return rates vary. After the accumulation period, the insurance company will make periodic payments to you under the terms of your contract, unless you choose to receive your contract value in a lump sum. Can you lose money buying an equity-indexed annuity?You can lose money buying an equity-indexed annuity, especially if you need to cancel your annuity early. Even with a guarantee, you can still lose money if your guarantee is based on an amount that’s less than the full amount of your purchase payments. In many cases, it will take several years for an equity-index annuity’s minimum guarantee to “break even.” You also may have to pay a significant surrender charge and tax penalties if you cancel early. In addition, in some cases, insurance companies may not credit you with index-linked interest if you do not hold your contract to maturity. What are some of the contract features of equity-indexed annuities?Equity-indexed annuities are complicated products that may contain several features that can affect your return. You should fully understand how an equity-indexed annuity computes its index-linked interest rate before you buy. An insurance company may credit you with a lower return than the actual index’s gain. Some common features used to compute an equity-indexed annuity’s interest rate include:
Another feature that can have a dramatic impact on an equity-indexed annuity’s return is its indexing method (or how the amount of change in the relevant index is determined). Some common indexing methods include:
These and other features may be included in an equity-indexed annuity you are considering. Before you decide to buy an equity-indexed annuity, you should understand how each feature works and what impact, together with other features, it may have on the annuity’s potential return. Who should I contact if I have a problem?If you have a problem with an equity-indexed annuity, you should contact your state insurance commissioner. In addition, we would also like to hear from you, although we will likely only have jurisdiction to resolve yuor particular issue if your equity-indexed annuity is a security. You can send us your complaint using our online complaint form at www.sec.gov/complaint.shtml. You can also reach us by regular mail at: Securities and Exchange Commission Where can I find more information?Before you purchase an equity-indexed annuity, you should understand how it works, what factors to consider in making your decision, and how you can avoid common problems. An “investor alert” concerning equity-indexed annuities is available on FINRA’s website. For more information about investing wisely and avoiding fraud, please check out the Investor Information section of our website at www.sec.gov/investor.shtml.
http://www.sec.gov/investor/pubs/equityidxannuity.htm
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