They used to be called equity indexed annuities, as this article still calls them, before the sales people decided to change the generic name. I’ve written about these before in Retirement Watch, and this article is a good read. It might be a bit too negative. These annuities can be good for someone who would invest very conservatively anyway but wants the potential for a little bit higher return. The person also needs to know exactly what he or she is buying to avoid disappointment and feeling misled. You also need to check fees, especially surrender fees. Above all, shop around. There are wide differences between offerings, as this article makes clear. If you aren’t willing to shop around, learn the product details, and compare them. If not, then stay with investments you understand.
But the products are exceptionally complicated, featuring a host of contractual elements and terms that will be unfamiliar to most investors. And even for those who are willing to invest the time to understand what they’re buying, it’s extremely difficult to comparison-shop to make sure a given annuity is a good one. By the time you understand an equity-indexed annuity enough to purchase it, you could practically sell these products yourself.
That complexity and lack of transparency has prompted entities like FINRA, the self-regulatory body for brokers and exchanges, and the National Association of Insurance Commissioners to issue advisories on equity-indexed annuities, explaining the products and urging consumers to do their homework.