Annuity Companies: Where Do They Invest?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Fixed Annuities

For traditional fixed annuities, the company that sells you the annuity will invest all of the money it receives from you in traditional investments, like corporate bonds, mortgage-backed securities, and similar investments.

The contract owner gets the most of the profit yield. The rest goes toward acquisition, maintenance costs, and a profit for taking risks.

Find the best fixed annuity rates to earn the highest interest rate on your retirement savings.

What Do Annuity Companies Invest In

Fixed Index Annuities

To provide for market-linked growth and principal protection, the insurance company uses a small percentage of the contract owner’s premium to buy a call option from a group of investment banks. As a result, the best call option price is the one that gives the contract owner the highest cap for the fee the insurance company pays.

When the market rises, the insurance company pays the contract owner 100% of the return from the expiring call option. The insurance company does not deduct fees for the option’s cost or the competitive bidding process.

When the market declines, the call option expires and is worthless. This means that the insurance company still pays for the option.

Find the top 10 fixed-indexed annuity companies

How Do Annuity Companies Make Money

How Does The Annuity Company Profit?

The company invests most of its assets in corporate bonds and fixed securities. This protects the contract owners’ accounts against declines in equity prices. The profit from a fixed-indexed annuity comes from the investment income generated from its portfolio minus the fee paid to the investment bank for the call option on the index.

How Do Annuities Make Money

Where Does Annuity Income Come From?

The income from an annuity can come from three different sources.

  • The first is the investment income that the company earns on its portfolio. This includes interest, dividends, and capital gains.
  • The second source is the premium that the contract owner pays. This money goes into a separate account for expenses like acquisition and administration fees.
  • The third source of income is the death benefit. If the contract owner dies, the beneficiary will receive a death benefit equal to the account value.

Next Steps

As you can see, annuity companies invest in various ways. Each type of investment has its own set of benefits. Be sure to do your research before investing in an annuity. This will help you ensure that your money is being put to good use and that it will grow over time. Thanks for reading!

What Do Annuity Companies Invest In

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Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, 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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