An annuity is a contract between you and an insurance company, under which you make a lump-sum
payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at
some future date. Annuities typically offer tax-deferred growth of earnings and may include a death benefit that will pay
your beneficiary a guaranteed minimum amount, such as your total purchase payments.
There are generally two types of annuities—fixed and variable. In a fixed annuity, the
insurance company guarantees that you will earn a minimum rate of interest during the time that your account is growing. The
insurance company also guarantees that the periodic payments will be a guaranteed amount per dollar in your account. These
periodic payments 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.
In a variable annuity, by contrast, you can choose to invest your purchase payments from among a range of different
investment options, typically mutual funds. The rate of return on your purchase payments, and the amount of the periodic payments
you will eventually receive, will vary depending on the performance of the investment options you have selected.
An equity-indexed annuity is a special type of annuity. 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.
Variable annuities are securities regulated by the SEC. Fixed annuities are not securities and
are not regulated by the SEC. Equity-indexed annuities combine features of traditional insurance products (guaranteed minimum
return) and traditional securities (return linked to equity markets). Depending on the mix of features, an equity-indexed
annuity may or may not be a security. The typical equity-indexed annuity is not registered with the SEC.
You can learn more about variable annuities by reading our publication, Variable Annuities: What You Should Know. You can learn more about equity-indexed annuities by reading our online brochure, which explains equity-indexed annuities and provides resources for obtaining additional information.
For more information go here http://www.sec.gov/answers/annuity.htm