Demystifying Market Exposure
Fixed Index Annuities

A common misconception about fixed index annuities (FIAs) is how they relate to the stock market. Many clients believe they invest directly in a market index when purchasing a FIA. However, the reality is more nuanced. Let’s break down how FIAs work regarding market exposure and what that means for you.
What is a Fixed Index Annuity?
Before we dive into the details of market exposure, let’s quickly recap what a Fixed Index Annuity is:
- A FIA is a type of annuity contract between you and an insurance company.
- It offers the potential for interest earnings based on the performance of a specified market index, such as the S&P 500.
- FIAs provide principal protection against market downturns.
The Key Distinction: Linked, Not Invested
Here’s the crucial point to understand: With a FIA, you are not directly investing in any stock market index or buying shares of stocks or mutual funds. Instead, the interest you earn is linked to the performance of a chosen index. This distinction is fundamental to how FIAs work.
How Does the Linking Work?
- Index Tracking: The insurance company tracks the performance of the specified index (e.g., S&P 500, Nasdaq Composite) over a certain period.
- Interest Crediting: The insurer calculates the interest to be credited to your account based on the index’s performance. This is typically done annually, but some FIAs use other timeframes.
- Participation Rates and Caps: The amount of interest credited is usually subject to certain limitations:
- Participation Rate: This determines what percentage of the index’s gain will be credited to your account.
- Cap Rate: This sets a maximum on the interest rate that can be credited, regardless of how well the index performs.
An Example for Clarity
Let’s say you have a FIA linked to the S&P 500 with a 7% cap rate:
- If the S&P 500 goes up 15% in a year, your FIA would be credited with 7% interest (due to the cap).
- If the S&P 500 goes up 5%, you would receive 5% interest (below the cap).
- If the S&P 500 declines by any amount, your principal remains protected, and you receive no interest credit for that year.
What This Means for You
- Upside Potential with Downside Protection: You have the opportunity to benefit from positive market performance while being shielded from losses during market downturns.
- No Direct Market Participation: You don’t own any stocks or funds, which means you also don’t receive dividends or have voting rights associated with stock ownership.
- Complex Crediting Methods: Some FIAs use more complex methods to calculate interest credits, which can be challenging to understand and predict.
Understanding is Key
Fixed Index Annuities offer the potential benefit from market gains without direct market risk. However, it’s crucial to understand that you’re not investing in the market itself. Instead, you’re purchasing an insurance product that uses market index performance as a benchmark for crediting interest.
Remember, in the world of FIAs, you’re not climbing the market mountain directly – you’re on a parallel path that mirrors the mountain’s contours while providing a safety harness against falls.
Discover the Oceanview Difference: Your Secure Path to Retirement
As you consider Fixed Index Annuities for your retirement planning, it’s crucial to choose a provider that offers not just products, but partnership and peace of mind. At Oceanview Life and Annuity Company, we stand out as a trusted choice for several key reasons:
- Proven Financial Strength: We hold an “A” (Excellent) rating from A.M. Best, demonstrating our strong financial stability and reliability. This rating helps to provide assurance that we have the financial resources to meet our commitments to policyholders.
- Simplicity at Our Core: We design our annuities with clarity in mind. We avoid complex terms and hidden clauses, offering straightforward financial products that simplify your retirement savings journey.
- Client-Centric Approach: Our solutions are tailored to meet your financial needs, regardless of where you are in your retirement savings journey.
- Competitive Rates: We offer some of the industry’s most competitive rates with our annuities. Our products are structured to help maximize your retirement savings growth potential, giving you an edge in your financial planning.
- Valuing Professional Guidance: We recognize the importance of expert advice in financial planning. We advocate for working with financial professionals, ensuring that you have the support and guidance needed to make informed decisions.
Choosing Oceanview for your Fixed Index Annuity means partnering with a company that values transparency, financial strength, and your unique retirement savings goals.
Disclaimers:
Oceanview’s Single Premium Fixed Indexed Annuity Contract [ICC19 OLA FIA], product riders and state variations are issued by Oceanview Life and Annuity Company, Denver, CO (in CA d/b/a Oceanview Life and Annuity Insurance Company). Product features, limitations and availability may vary. Products not available in all states. Guarantees provided by annuities are subject to the financial strength and claims paying ability of the issuing insurance company. This material is a general description intended for public use. You should consult with your agent or other financial professional to determine what, if any, action may be appropriate for you. As such, nothing in this document should be read as investment advice. You should also reach out to your agent if you have any questions about our Company’s products or their features. A.M. Best Rating as of November 1, 2023, is subject to change. A (Excellent) rating is the third highest of fifteen possible rating classes for financial strength.ANNUITIES ARE PRODUCTS OF THE INSURANCE INDUSTRY AND NOT GUARANTEED BY ANY BANK NOR INSURED BY THE FDIC OR NCUA/NCUSIF. MAY LOSE VALUE. NO BANK/CREDIT UNION GUARANTEE. NOT A DEPOSIT. NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY. MAY ONLY BE OFFERED BY A LICENSED INSURANCE AGENT. This document contains highlights only — for a full explanation of these annuities, please refer to your product disclosure which along with your contract, provides more detailed product information, including all charges or limitations.