What’s the difference between an index annuity and a hybrid annuity?

What’s the difference between an index annuity and a hybrid annuity?

Keep It simple Answer: They are the same thing but a hybrid annuity means you added on an income rider

An index annuity is a type of fixed annuity. Instead of earning a fixed rate of interest, you link your interest to a market index.

The key word is “link”. That means you only get “some” of the market gains when it goes up, but you don’t lose any money when the market goes down.

difference between an index annuity an a hybrid annuity

Just follow along.

The dark blue line is the S&P 500 from 1998 to 2013. It goes up and down and up down.

The green line is a sample index annuity. You can see in years the SP 50o goes up, the green line goes up too, but not as much.

You also lock you gains in every year. So when the market declines, you just earn zero that year. You do not lose when the market goes down.

So that’s the trade off. In order to protect you money from losses,  You don’t get all the ups in years the market goes up.  (Amount of participation varies from contract to contract. )

Index annuities are not designed to compete head on with mutual funds. They are designed to compete against other safe products like bank accounts.

So what’s the difference between an index annuity and a hybrid annuity?

The term “Hybrid Annuity” is a marketing term. Personally I like the term because we have all kinds of hybrid things now.

It usually means “One object that has two things going on,” Like a hybrid car has a gas engine and an electric power in the same car.

In most cases, when you see the term “Hybrid Annuity” is means an index annuity with an income rider.

People who like the concept of the index annuity, and want to make sure they don’t run out of money in retirement, add an income rider onto an index annuity. 

For an in depth look at Income Rider or Hybrid Annuities I would suggest getting my guide. You can get a copy by clicking here.

 

 

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