An indexed annuity is a type of annuity contract between you and an insurance company. It generally promises to provide returns linked to the performance of a market index. There are two phases to an annuity contract – the accumulation (savings) phase and the annuity (payout) phase.
During the accumulation phase, you make either a lump sum payment or a series of payments to the insurance company. You can allocate these payments to one or more indexed investment options. The insurance company credits your account with a return that is based on the indexed investment option’s return. During the annuity phase, the insurance company makes periodic payments to you. Or, you can choose to receive your contract value in one lump sum.
Not all indexed annuities are regulated by the SEC. The SEC regulates only indexed annuities that are securities. These indexed annuities can expose investors to investment losses. If the indexed annuity is a security, generally a prospectus will be delivered to you.
Indexed annuities also are subject to state insurance regulation. Indexed annuities that are not regulated by the SEC include minimum guarantees that limit and in many cases eliminate the potential for investment losses.