Fixed indexed annuity products have recently found favor among financial advisors and consumers, despite some money managers who have launched a full-frontal assault in the press and through online advertising. But the policy provisions may be the very features consumers are searching for in a market-engaged product with downside market protection.

Like all financial products, fixed indexed annuities policies have expenses. The fixed indexed annuity market is substantial and the policy costs are all over the board, so tread carefully and demand full disclosure on all expense charges before making a purchase. Keep in mind there are surrender charges for the holding period you select, so maintaining liquid assets for unexpected emergencies or investment opportunities is important. Fixed indexed annuities have tax-deferred treatment outside a qualified plan. The deferral may have an economic value of its own, especially the longer the holding period of the contract. This could come into play if your tax bracket is lower at the time of withdrawals or annuitization. But deferral doesn’t mean tax-free. It simply means delaying an ordinary income-tax event. Watch the interview with economist and financial advisor John Dubots on fixed indexed annuities. [URL]

The crediting method used inside a fixed indexed annuity is the unique use of option trading with domestic and foreign indices. The index option is favorable the insurance company can credit the account with earnings up to the participation rate, cap rate or spread rate. The structure of these three crediting provision are extremely important, and knowing their calculation formula is critical to your understanding of the policy’s crediting approach. The earnings do not include dividends. In a negative period of index performance, the policy will never post a return lower than zero. That’s a significant risk-mitigating feature that can be an attractive addition to your portfolio. That doesn’t mean you’ll never experience a loss. The policy expenses are deducted from the crediting account, so if the account credited is zero, the debiting of the policy expenses could create a loss of principle. But with that in mind, fixed indexed annuities can play a role in your overall portfolio.

Syndicated financial columnist and talk show host Steve Savant interviews John Dubot financial planner and economist. John is one of the leading proponents of tactical investing in the country and has been featured in Forbes and Fortune Magazine.