SUZE ORMAN

In its effort to keep up with mutual funds, the insurance industry introduced yet another kind of annuity. It was created to compete with very popular index funds; mutual funds that track a stock market index. I have to admit I like the concept's for the right investors. How does an index annuity work? Like all annuities, an index annuity is a contract with an insurance company for a specific period of time. An index annuity is a particular stock-market index, such as the Standard & Poor's 500. Your rate of return will usually be a set percentage of the increase in that index in the corresponding index year, up to a maximum of a given percent. There is also a guarantee against losses. The surrender period on an index annuity is typically longer than other surrender periods of about seven to ten years.

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