How Exactly Do Hybrid Annuities Work?
Just what is this hyped up “Hybrid” Annuity that so many annuity agents and financial advisors are talking about? The term ‘hybrid annuity’ is often used to describe a Fixed Index Annuity (FIA). In this video, Rob Brinkman explains how a Fixed Annuity chassis is used as a platform for the “Hybrid” Annuity, and how the insurance company provides its Index Annuity owners with the opportunity to participate in market upswings while being protected from market downturns with the use of options.
The following FAQs are addressed in this educational video below:
- What is a Hybrid Annuity? (15 second mark)
- What Risks are present in Variable, Hybrid, and Fixed Annuities? (45 second mark)
- How do Fixed Annuities earn interest? (2 minute mark)
- Why a Hybrid Annuity is a mix between Variable and Fixed? (2:40 mark)
- How option purchases work in Hybrid Annuities? (3:45 mark)
- Why these Fixed Index (aka – “Hybrid”) Annuities are so popular? (5:48 mark)
To learn more from this annuity professional, click here (Rob Brinkman).
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I believe that the term "hybrid annuities" should not be applied to Index Annutiies. Why? Two reasons:
First, "hybrid" suggests that an index annuity is part one thing and part another, in this case, part "variable" and part "fixed". That is not so. An index annuity that has not been registered as a Variable product is ALWAYS a FIXED annuity. It has the central elements of fixed annuities – a guarantee of principal and a guarantee of a minimum interest crediting rate.
Second, "hybrid" is also used to describe deferred annuities with Long Term Care benefits, and that usage makes sense. Such a contract is part deferred annuity and part long term care insurance.
The interest crediting of an index annuity is NOT a "hybrid". Why? Because, while the interest rate credited is, indeed, linked to the growth in the value of an external equity index (often, the S&P500), that linkage always operates as a "ratchet"; that is, positive growth of the index in Year N will generate index-linked interest, declines in the index value NEVER generate losses to the annuity cash value. This is precisely why many in our industry, including Yours Truly, prefer the term "fixed index annuity" to describe these contracts.