Are Equity Indexed Annuities Risky?

Shawn Plummer

CEO, The Annuity Expert

Are Equity-Indexed Annuities Risky?

Equity-indexed annuities, also known as fixed-indexed annuities, are financial products offered by insurance companies. They are designed to provide a balance between the potential for growth and the protection of the principal.

Here are key points to understand about the risk profile of equity-indexed annuities:

1. Principal Protection

  • Your initial investment (principal) is generally protected.
  • Losses due to market downturns are typically not directly passed to the investor.

2. Interest Earnings

  • Earnings are linked to a stock market index (like the S&P 500).
  • If the index performs well, you earn a percentage of the gains.
  • There’s usually a cap on maximum gains.

3. No Direct Market Investment

  • Your money is not directly invested in the stock market.
  • This reduces the risk compared to direct equity investments.

4. Fees and Charges

  • There may be high fees or surrender charges for early withdrawal.
  • These costs can impact overall returns.

5. Inflation Risk

  • If the annuity’s returns don’t keep pace with inflation, purchasing power can erode over time.

6. Complexity

  • These products can be complex and difficult to understand.
  • It’s important to thoroughly understand the terms and conditions.


While equity-indexed annuities offer protection against market losses and can be a less risky option compared to direct stock market investments, they are not entirely without risk. Fees, inflation, and caps on returns are factors to consider. Understanding these products in detail is crucial before investing. They might be suitable for those seeking a balance between risk and potential growth.

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Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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