# Fixed and Indexed Annuities | Lighthouse Legacy Strategies > Fixed and fixed indexed annuities explained in plain language by Sharon Donovan. Caps, floors, riders and surrender terms shown before you commit a dollar. Canonical page: https://lighthouselegacystrategies.com/annuities # Income that arrives either way An annuity is not an investment. It is a contract with an insurance company that trades some upside for a floor, and it is either the right tool for a specific job or the wrong one. There is very little middle ground. ## The first question is what the money is for The job is usually one of two things. Either you are protecting a balance you cannot afford to rebuild, or you are turning that balance into a paycheck that keeps arriving no matter how long you live or what the market does. ### Fixed annuities A stated interest rate for a stated term, with your principal protected from market losses. Predictable, quiet, and useful for money that has a job to do inside a known window. ### Fixed indexed annuities Interest linked to an index, with a floor that prevents a negative year and a cap or participation rate that limits the upside. The cap is the price of the floor, and you should see both numbers before you sign. ### Lifetime income riders Optional features that turn a contract into a defined monthly income for life. This is longevity insurance: it solves the risk of outliving your money. ### Existing contract reviews If you already own an annuity, bring the statement. Surrender schedules, rider fees and caps that reset annually are the three things owners most often do not know about their own contract. ### Book a consultation Twenty to thirty minutes on your goals, your obligations and what you already own. I will answer your questions and outline clear next steps based on what matters most to you. ### Not ready to talk? Run the free calculators first. Nothing is stored and no contact details are required to see a result. ## The same five steps, every time ### A short conversation Income, obligations, timeline and what you are actually worried about. No product is mentioned and nothing is sold. Usually 20 to 30 minutes by phone or video. ### A look at what you own Group coverage, old policies, pension paperwork, retirement accounts. I map what each piece is doing today and where the gaps are, and you get that in writing. ### Options, side by side Two or three routes with the trade-offs written down: guarantees, access to the money, cost, and the scenario where each one underperforms. ### Application and underwriting I handle the application, the carrier questions and the beneficiary designations end to end, and you have my direct number the whole way through. ### Annual review Jobs change, families change, rules change. I review every policy I place each year so it keeps doing the job you bought it for. ## About annuities specifically ### What is an annuity? An annuity is a contract between you and an insurance company. You place money with the carrier, and in return the carrier agrees to credit interest, protect principal, pay you an income, or some combination, according to the terms written in the contract. Annuities come in several types with very different risk profiles. Guarantees are backed by the claims-paying ability of the issuing insurance company. ### What is a fixed annuity? A fixed annuity credits a rate of interest declared by the insurance company for a stated period. Your principal is not exposed to market losses, and you know the crediting terms before you sign. A multi-year guaranteed annuity, often called a MYGA, locks the declared rate for the full term. Rates change often and vary by carrier, so any figure I show you comes straight from the carrier. ### What is a fixed indexed annuity? A fixed indexed annuity is an insurance contract whose interest credits are tied to the performance of a market index, with a floor that protects your principal from index losses. You are not invested in the index and you do not own shares. In exchange for that protection, the upside is limited by caps, participation rates or spreads. Those limits vary by carrier and can change over time. ### Are fixed annuities safe? Fixed annuities are backed by the claims-paying ability of the issuing insurance company, which is why company ratings matter. They are not FDIC insured and not guaranteed by the federal government. Every state also has a guaranty association providing limited protection, subject to statutory limits. I show you the carrier's independent strength ratings before you decide anything. ### What is the difference between a fixed indexed annuity and a variable annuity? A variable annuity invests directly in the market, so your principal can lose value. A fixed indexed annuity credits interest based on index performance but protects your principal from market losses, and it usually carries lower fees. Variable annuities are securities and require a securities license. I do not hold one and do not offer them. ### How does a fixed indexed annuity credit interest? Each crediting period the carrier measures the change in an index such as the S&P 500. If it rose, you are credited interest up to a cap or participation rate. If it fell, you are credited zero rather than losing money. Credited gains lock in and cannot be taken back by a later down year. Every one of those terms is spelled out in the contract. ### Can I lose money in a fixed indexed annuity? Index losses do not reduce your principal, and that protection is the core design of the product. You can still end up with less than you put in for two reasons: withdrawing during the surrender period, which triggers a surrender charge, and optional rider charges deducted from your value. A zero interest year is also possible. ### What are the downsides of a fixed indexed annuity? Growth is capped, and surrender charges apply if you withdraw early beyond the free-withdrawal amount. Some years credit zero. A fixed indexed annuity rewards money you can commit for a number of years, so I make sure the surrender schedule fits your timeline before recommending one. If those trade-offs are not acceptable to you, it is the wrong product. ### What is a surrender charge? A surrender charge is a penalty the insurance company applies if you take out more than your contract allows during the surrender period. The charge is a percentage of the amount withdrawn and it generally declines each year until it reaches zero. This is the single most important number to understand before signing, and I cover it every time. ### When can I take money out of an annuity? Most contracts allow a penalty-free withdrawal of a set percentage of your value each year after the first contract year, commonly 10 percent, and full access after the surrender period ends. Withdrawals before the age set by current IRS rules may face a tax penalty, so timing matters. An annuity should never hold money you may need in an emergency. ### What is an income rider? An income rider is an optional feature you can add to some annuities to create a stream of income you cannot outlive. It usually carries an annual charge, and it tracks a separate benefit value used only to calculate the income, not a cash value you can withdraw. If you do not need lifetime income, a rider may be an expense you simply do not need. ### How are annuities taxed? Growth inside an annuity is generally tax deferred until you take money out. How a withdrawal is taxed depends on whether the contract sits inside a retirement account or was funded with after-tax money, and an early withdrawal penalty can apply below the age set by current IRS rules. I am not a tax professional, so I explain how the contract works and leave the calculation to your CPA. ### What happens to my annuity when I die? Whatever remains passes to the beneficiaries named in the contract, and it generally avoids probate because a beneficiary is already on file. A surviving spouse can often continue the contract as the new owner. Some payout elections stop at death while others continue, which is why the option you choose matters. Keep your beneficiary designations current. ### Who should not buy an annuity? Anyone who may need the money soon should not tie it up in an annuity. That includes people without a separate emergency fund, people expecting a major expense during the surrender period, and people who want full market upside and can stomach the losses that come with it. If that describes you, I will say so on the first call and suggest something better suited. ### Do you earn a commission when someone buys an annuity? Yes. The insurance company pays me a commission when a contract is placed, which is why reviews and illustrations cost you nothing. That commission comes from the carrier and is not deducted from your premium as a separate charge. You should ask this question of anyone who shows you an annuity, and be wary of anyone who avoids answering it. ### What is a free look period? A free look period is a window after you receive your contract during which you can cancel it and get your money back. The length is set by state law and by the contract. It exists so you can read the actual document at your own kitchen table instead of deciding in a meeting. I encourage people to use it. ### How do I get an annuity quote or illustration? Ask for one. An illustration takes only a few pieces of information: your age, your state, the amount you are considering and when you would want income to start. I request it from the carrier and go through it with you line by line, including the fees and the surrender schedule. There is no cost and no commitment. Call (501) 516-9456 to get started. ## The other three pillars These are not competing products. They solve different problems, and which ones you need depends entirely on what your money is being asked to do. ### Retirement Income Planning Turning what you have saved into monthly income you can count on, built around your pension, your Social Security and the gap that is left over. ### Life Insurance and IUL Term, whole life and indexed universal life with living benefits, sized to the job you are hiring the policy to do rather than a rule of thumb. ### Final Expense and Mortgage Protection Smaller policies with simplified approval that keep a funeral or a mortgage from landing on your family in the worst week of their lives. ## Start with a conversation, not a recommendation. Bring what you already own. Statements, policies, benefit summaries. You will leave with a written picture of where you stand whether or not you ever work with me. --- Lighthouse Legacy Strategies, the independent insurance practice of Sharon Donovan, a licensed life insurance and annuity agent in Arkansas, Missouri and Texas, based in Little Rock, Arkansas. Retirement income planning, annuities, life insurance and IUL with living benefits, final expense and mortgage protection. Sharon Donovan (501) 516-9456 (call or text), sharon.donovan@wealthwave.com. By appointment, including evenings. Most consultations happen by phone or video. Important disclosures: Lighthouse Legacy Strategies is an independent insurance practice. Sharon Donovan is a licensed insurance agent (NPN 18170848) in Arkansas, Missouri and Texas. This website is for educational purposes only and is not financial, tax, legal or investment advice. Guarantees are backed by the claims-paying ability of the issuing insurance company. Policy loans and withdrawals reduce cash value and death benefits. Not affiliated with any government agency. Full set: https://lighthouselegacystrategies.com/disclosures Powered by [Launch Automation](https://launchautomation.ai/websites/)