Difference Between Fixed Index And Variable Annuities

Hi, this is Stan The Annuity Man. Today's topic is really interesting: the difference between Fixed Index and Variable Annuities. At the end of this blog, you'll know everything you need to know to decide whether a Fixed Index Annuity or a Variable Annuity fits your specific situation. I'm going to cover what a Fixed Index Annuity is, what a Variable Annuity is, and what the differences are between the two. I'm also going to talk about what each of those specific product types, Fixed Index Annuities, and Variable Annuities, sell for. Also, as a bonus, at the end of this blog, I'm going to tell you how to get a free book that I've written on Fixed Index Annuities that you need to have, and I'm going to give it to you for free.

Brief History

Let's start with Fixed Index Annuities, a popular product right now. A lot of times it's being mis-sold and overhyped, but let's talk about what it really is. It's a Fixed Annuity. It's a life insurance product and not a security. You do not need a securities license to sell a Fixed Index Annuity. All you need is a life insurance license on the state level to sell it. It was developed in 1995 to compete with CD returns. And guess what? That's exactly what it does, even though it's historically pushed as a market growth-type product. It is a little bit better than CD returns, but it was designed to compete with CD returns.

So, what is a Variable Annuity? A Variable Annuity has been around since about 1955 in this country. It was put on the planet for tax-deferred market growth. Inside a Variable Annuity, think of an insurance company as an insurance wrapper around mutual funds. Now, Variable Annuity companies call those mutual funds separate accounts, but for you and me, let's call them mutual funds because that's kind of what they are. And what you can do in a non-IRA account with a Variable Annuity is have those mutual fund investments grow tax-deferred using those mutual funds, which is a good thing.

Now, there's good and bad with all products. Variable Annuities can be load annuities, which means they have surrender charges. And there are also Variable Annuities that are no load, meaning that you can have 100% liquidity while those mutual funds are growing tax deferred. That's, in essence, what a Variable Annuity is.

The Differences

What are the differences between Fixed Index Annuities and Variable Annuities? First of all, let's look at Variable Annuities. It's a security. You need a securities license or that type of licensure to sell it. A Fixed Index Annuity is not a security, it's a life insurance product. You need a life insurance license at the state level to sell it. Now, Variable Annuities were put on the planet for market growth and stock market growth using those mutual funds or separate accounts inside that Variable Annuity. By the way, 1955 was the time that Variable Annuities hit the planet. In 1995, Indexed Annuities and Fixed Index Annuities were introduced to compete with CD returns. In essence, it's a Fixed Annuity, it's principle protected, but it was put on the planet for enhanced CD returns. So, a Fixed Indexed Annuity is a life insurance product with CD-type returns. Variable Annuity is a security with market returns.

What Does it Solve For?

What do Fixed Index Annuities and Variable Annuities specifically solve for? Let's talk about Fixed Index Annuities first. Number one, keyword, fixed. It protects your principal. You're never going to lose a penny because it's a Fixed Annuity. It's part of that Fixed Annuity family, Single Premium Immediate Annuities, Multi-Year Guaranteed Annuities, Qualified Longevity Annuity Contracts, Deferred Income Annuities, and then you have Fixed Index Annuities. So, it takes a life insurance license to sell it. It's not really a market product, even though it's sold like that a lot of times. It was put on the planet in 1995 to compete with CD returns. But you can also attach what's called an Income Rider benefit that can solve for future income and an attachment you put on at the time of application. So, that's what Fixed Index Annuity solves for.

Let's talk about Variable Annuities. Variable Annuities are market products. You have mutual funds, i.e., AKA, separate accounts. Inside that Variable Annuity, you have full market growth potential. If you're picking the right mutual funds or separate accounts, you get as much upside as humanly possible. The good news about Variable Annuities, they were put on the planet in 1955 for tax-deferred growth. You can get market growth outside of an IRA and defer taxes on that growth, so you don't have to pay taxes on that. Just like with Indexed Annuities, you can also attach a lifetime benefit Income Rider to a Variable Annuity for future income stream guarantees. Both allow you to attach that Income Rider if you want, but one is a CD-type return, and one is a market return.

Where Do They Fit?

Where do Fixed Index Annuities and Variable Annuities fit in your portfolio? I think it's really simple. Even though the sales pitches you'll hear out there at the bad chicken dinner seminar circuit or on television will tell you otherwise. But these are the facts. Variable Annuities are market growth products. They're tax-deferred in a non-IRA setting, market growth products, and you can also use them for future income guarantees with attached income riders. Fixed Index Annuities, CD enhanced CD type product, not a market product even though you're going to hear it is. You're going to hear that market upside with no downside. You're going to hear some of the best pitches in the world, but at the end of the day, understand they were designed in 1995 and put on the planet to compete with CD returns and that's really what they do.

They protect your principal. So, that's where it fits if you want principal protection and maybe a little bit better than CD returns, perfect. Also, if you want to attach an income benefit guarantee, you can do that as well. It really comes down to what you're trying to achieve. With Variable Annuities, market growth. With Fixed Index Annuities CD-type returns, both can provide lifetime income benefits.

Now, remember in the first part of this blog, I talked about free books? Well, guess what? You can download them all for free. Remember we discussed the tax income benefits and the lifetime guarantees for both Variable and Fixed Index? I cover it all in my Income Rider owner's manual, which you can download for free. When you download it, guess what? We won't call you. We won't bug you. We won't show up at your doorstep. We won't require you to eat a bad chicken dinner seminar meal. You'll just get the information, and you'll be able to make a decision on your terms and your timeframe regarding whether these products are right for you.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.