Types of Annuities

Fixed Indexed Annuity (FIA)

A Fixed Indexed Annuity — commonly called an FIA — is one of the most popular annuity products available today, and for good reason. It offers a powerful combination that most financial products cannot match: the opportunity to earn interest based on market index performance, with a guarantee that you will never lose your principal due to market downturns.

Your money is not invested directly in the stock market. Instead, the insurance company uses a market index — such as the S&P 500 — as a benchmark to calculate your interest credits. If the index goes up, you receive a portion of that gain, up to a defined cap or participation rate. If the index goes down, you simply receive zero interest for that period. You never go backwards.

How Interest Is Credited

FIAs use crediting strategies to determine how much interest you earn. The most common include an annual point-to-point strategy — where the index value is measured at the start and end of the year — and a monthly averaging strategy that smooths out fluctuations over time. Most FIAs give you the ability to choose your strategy each year at the anniversary date.

Your earnings are also subject to either a cap rate (the maximum interest you can earn in a given period) or a participation rate (the percentage of the index gain you receive). For example, if the S&P 500 gains 12% and your plan has a 7% cap, you would be credited 7% for that year — while someone fully in the market might see losses in a different year that wipe out those gains.

Who Is a Fixed Indexed Annuity Best For?

• People who want to grow their savings without risking their principal
• Pre-retirees or retirees who cannot afford to lose money to a market crash
• Individuals who want a long-term savings vehicle with tax-deferred growth
• Those who may want to add an Income Rider for future guaranteed lifetime income

Multi-Year Guaranteed Annuity (MYGA)

A Multi-Year Guaranteed Annuity — often called a MYGA — is the annuity world’s answer to a bank CD. It is the simplest type of annuity: you deposit a lump sum, the insurance company guarantees a fixed interest rate for a set number of years, and at the end of the term your money — plus all the accumulated interest — is available to you.

MYGAs typically offer terms ranging from 2 to 10 years, with interest rates that are locked in for the entire duration. Unlike a bank CD, however, the interest in a MYGA grows tax-deferred — meaning you do not owe taxes on the growth until you withdraw it. This makes MYGAs particularly attractive for people in higher tax brackets who are looking to park savings efficiently.

How MYGAs Compare to Bank CDs

MYGAs routinely offer higher interest rates than bank CDs for the same term length. In the current rate environment, a 5-year MYGA from a highly-rated insurance company often pays significantly more than a 5-year CD from a bank — while offering the same simplicity and predictability. The key difference is that MYGAs are backed by the insurance company’s financial strength rather than FDIC insurance, which is why carrier ratings matter when choosing a MYGA.

Who Is a MYGA Best For?

• People who want guaranteed, predictable growth with no market risk
• Those rolling over a CD and looking for a better rate
• Anyone who wants tax-deferred growth on savings they will not need immediately
• Individuals who are comfortable locking funds for 2–10 years

Income Rider Annuity

An Income Rider is not a standalone annuity product — it is an optional benefit that can be added to a Fixed Indexed Annuity (or some other annuity types) for a small annual fee. When you add an Income Rider, you are purchasing a guarantee of future lifetime income, regardless of what happens to your account value in the market.

Here is how it works: the Income Rider creates a separate “income account value” — sometimes called a benefit base — that grows at a guaranteed rate each year during the accumulation phase, often between 5% and 8% compounded annually. When you are ready to turn on income, the insurance company calculates your guaranteed annual payout based on that benefit base and your age at the time of activation.

The Key Distinction: Account Value vs. Benefit Base

This is the most important concept to understand with an Income Rider. You have two “buckets” running simultaneously. Your account value is your actual money — it grows based on index performance and is what you can surrender or pass on as a death benefit. Your benefit base is a separate calculation used only to determine your income payments — it may be larger than your account value, and it exists solely to guarantee your income stream.

Once you activate income, the insurance company pays you that guaranteed amount for the rest of your life — even if your account value eventually drops to zero. This is the core promise of a lifetime income rider: you cannot outlive your money.

Who Is an Income Rider Annuity Best For?

• People who are concerned about outliving their retirement savings
• Those who want to create a personal pension-like income stream
• Retirees who want predictable monthly income on top of Social Security
• Anyone who wants guaranteed income but also wants their unused account value to pass to their beneficiaries