Benefits of Fixed Indexed Annuities (FIAs)
An insurance product with an investment element
Fixed Indexed Annuities (FIAs) continue to grow in popularity. Total U.S. annuity sales set a new industry record in 2025, reaching $464.1 billion. Fixed indexed annuity sales alone nearly doubled over the past five years, reaching $126 billion in 2024, with similarly strong results for 2025.¹
1. Transform Savings Into Income
When you purchase an annuity, you're exchanging a lump sum of money for an agreed-upon income stream. Fixed annuities appeal to retirees because they transform savings into predictable income.
2. Growth Potential
While FIAs don't directly invest in the stock market, they offer potential interest account growth based, in part, on the performance of a specified index, such as the S&P 500®. If the index has a positive return within the crediting period, the FIA policy may be credited with interest. Interest credited can be limited by factors such as a cap, spread, and/or participation rate. Discuss any limitations with your advisor before making a final decision.
3. Protection of Principal
Although an external index may affect credited interest, the contract does not directly participate in any equity or fixed income investments. This means principal is protected from market declines, subject to the terms and claims-paying ability of the issuing insurance company. FIAs are long-term products, which means there are holding periods during which surrender charges may apply. On withdrawals in excess of the free withdrawal amount, a market value adjustment (MVA) may also apply during the surrender charge period.
4. Income Guarantee
Annuities are designed to pay you a monthly income either immediately or in the future, subject to the terms and claims-paying ability of the issuing insurance company. FIAs are a type of deferred annuity; all annuities allow for guaranteed income through annuitization. Policyholders may choose not to annuitize, since doing so means they'll no longer have access to the contract value. Some FIAs offer income riders that allow for guaranteed income without requiring annuitization, plus the option to add a spouse. Since about one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95, FIAs with guaranteed lifetime income riders can appeal to retirees concerned about outliving their savings while still wanting access to contract value, if any is available.²
5. Tax-Deferred Growth
FIAs offer 100% tax-deferred growth: you're not taxed on interest earnings while your money stays in the annuity. If you take a withdrawal or begin receiving payments, they're taxed as ordinary income based on your tax rate at the time, similar to a 401(k) or traditional IRA. If payments begin before age 59½, an additional 10% federal tax may apply.
6. Bond-Like Replacement
Many investment advisors view FIAs as closely approximating bonds and other fixed-rate products, such as savings accounts or CDs. Historically low interest rates on those accounts have contributed to FIAs becoming a popular alternative, particularly given their potential for greater growth and compound interest based on market performance, without direct exposure to market risk.
7. More Options
Annuity policies continue to evolve. Many FIAs offer add-on riders for different needs, for example a rider that addresses inflation concerns, or one that provides a pool of funds for qualified long-term care needs. Each policy is different, and insurance companies offer varying coverage as they compete and improve their policies and riders based on consumer demand.
Common Misconceptions
"If you die early, you'll lose your policy." FIAs are insurance products that have changed and evolved, and many now allow spousal survivorship as well as the ability to name a beneficiary to receive a death benefit. Death benefits are available to named beneficiaries prior to annuitization. Benefits available once income has begun depend on the payout option chosen and may be limited.
"You'll lose access to your cash with no real guarantee you'll see the benefit." Financial professionals may offer FIAs as part of a complete, balanced strategy. With dramatic longevity increases in recent decades, the lifetime income rider is worth considering because it provides an alternative to annuitization. Some policies also waive surrender charges for disability, unemployment, or terminal illness.
"There are high commissions and fees." Sales commissions on FIAs are paid by the issuing insurance company, typically based on factors including the surrender period. Some FIAs are sold on a fee-based model through institutional channels. Your advisor will provide the fees and commission costs for FIAs compared with other strategies you may be considering. While no financial product is 100% guaranteed, many professionals and their clients see the value that guaranteed income can bring to a retirement plan.
Frequently asked
How big is the fixed indexed annuity market right now?
Total U.S. annuity sales hit a record $464.1 billion in 2025. Fixed indexed annuities specifically have nearly doubled over the past five years, reaching $126 billion in sales in 2024, with similarly strong momentum continuing into 2025.
Can I lose my death benefit if I die before the annuity pays out?
Not necessarily. Many modern FIAs allow spousal survivorship and let you name a beneficiary to receive a death benefit, available prior to annuitization. What's available once income payments have begun depends on the specific payout option chosen.
Are fixed indexed annuities expensive?
FIA sales commissions are paid by the issuing insurance carrier, not charged directly against your account in the way advisory fees often are. Some FIAs are also sold on a fee-based model through institutional channels. Costs and commission structures vary by product and should be reviewed against alternative strategies with your advisor.
How does an FIA protect my principal?
An FIA's value is benchmarked to a market index, but the contract itself is not directly invested in the market. If the index falls, credited interest for that period may be zero, but principal itself is protected from index-linked losses, subject to the terms and claims-paying ability of the issuing insurance company.
What happens if I need my money before the surrender period ends?
Most FIAs include a free withdrawal provision allowing you to access a portion of your account value each year without penalty. Withdrawals beyond that amount during the surrender charge period may trigger a surrender charge and, in some contracts, a market value adjustment (MVA).
Sources
- LIMRA, The 2026 Annuity Sales Outlook Remains Strong, limra.com/en/newsroom/industry-trends/2026/the-2026-annuity-sales-outlook-remains-strong (2026)
- Social Security Administration, Life Expectancy Calculator, ssa.gov/planners/lifeexpectancy.html
We are a financial services firm helping our clients prepare for retirement through the use of insurance products and strategies. We do not offer tax, estate planning, or legal advice. Always consult with a qualified professional before making any decisions about your personal situation. We are not affiliated with any US government agency. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company.