They say the earlier you decide to invest your money, the better. But, before you sign anything, you need to know exactly how your money may — or may not, perform — especially in a fixed index annuity. The market for these insurance products has boomed, but the complexity of these investments may feel misleading to the average consumer.

If you’re of retirement age, you may have been solicited by someone selling fixed index annuities as an investment tool for a lifetime income.

This can be true for many people. This story will dive a little deeper into these increasingly complex insurance contracts.

Before we get started, let’s define what a fixed index annuity is.

Sheryl Moore, CEO of Moore Market Intelligence, an indexed annuity consulting firm is an expert on the insurance product.

“A fixed annuity receives an interest rate that is declared by the insurance company,” Moore said. “An indexed annuity actually receives interest based on the performance of an index.”

Let’s break it down even further.

An annuity is a contract where an insurance company agrees to pay income in exchange for money invested.

An index is a formula, typically made by banks, that insurance companies use to determine how much money you earn over time. The index can be based on any type of market and how it changes, like the stock market.

So how do you know which one is best?

“I think that the best index to use on an indexed annuity is whatever index the purchaser understands the best,” Moore said.

The problem comes when indexes become so complex, it can be difficult for the insurance agent selling them to explain what they are for customers.

Sometimes a new indexed annuity will be marketed with charts showing a hypothetical performance of your money with returns of 8, 9, 10 percent or more every year.

But, the only guarantee is you won’t lose money if the market drops.

Those charts can persuade people, who still don’t underestand how the index in the annuity works, to buy. And that can lock up money for years, with severe penalties for canceling.

Fixed Index Annuity Marketing Can Feel Misleading To The Unwary Consumer

Mary Lou Thurston is 76 years old and lives with her disabled daughter, two cats and a small, rambunctious dog.

She’s made almost 50 quilts in the last few weeks for the retirement home nearby in Surprise.

“My house is kind of a mess because I’ve been busy,” she said. “I’ve been making these for care centers.”

Thurston is retired after working as a secretary at Honeywell. When it comes to financial matters, she feels a little out of her element.

That’s why she went to a seminar in 2008 after getting a flyer in the mail. She trusted the man advertising the seminar to put her money into something that would help her daughters after she dies.

“That’s all I have in life is my two daughters, so I’m gonna take care of them best I can,” she said.

Then she rolled her money into a new fixed index annuity in 2014, per that same advisor.

“He says, ‘You really need to change,’ and then he raised his voice when I said I didn’t want to,” Thurston said. “So he kind of pressured me and I went and I said, ‘OK, I’ll go with it,’ but, I says, ‘I’m trusting you.’”

But after fees started eating into the money she put into her new annuity that wasn’t growing like she thought, she was confused. The annuity’s annual payment wasn’t covering the large life insurance policy she took out in tandem either.

She also lost money in her principal when she switched to the new annuity on the recommendation of her advisor.

And now, after being approached by a different financial advisor, Thurston feels she was duped by an agent who made a commission for selling the product no matter how well it did for her.

“I was blind, you know, blindfolded,” Thurston said. “I just didn’t know what I was signing. It wasn’t a clear picture to me, and I just put my faith in my agent.”

The Arizona Department of Insurance also warns against high-pressure sales tactics when buyers, like Thurston, invest their money.

Some critics say these complicated products being pushed on retirees looking for an easy investment have made insurance companies billions of dollars.

Another criticism is that there isn’t enough oversight on how these new, complex annuities are made and sold.

The problem there, though, is if a consumer like Thurston signed on the dotted line, no matter how much she understood, there’s not much regulators can do. Agents are required to give as much information on the product as they have, and to look at their clients needs.

Stephen Briggs is a spokesman at the Arizona Department of Insurance.

“It’s buyer beware,” Briggs said.

Courtesy of

By Casey Kuhn