An indexed annuity is a type of annuity contract between you and an insurance company. It generally promises to provide returns linked to the performance of a market index. There are two phases to an annuity contract – the accumulation (savings) phase and the annuity (payout) phase.
During the accumulation phase, you make either a lump sum payment or a series of payments to the insurance company. You can allocate these payments to one or more indexed investment options. The insurance company credits your account with a return that is based on the indexed investment option’s return. During the annuity phase, the insurance company makes periodic payments to you. Or, you can choose to receive your contract value in one lump sum.
Depending on the circumstances, an indexed annuity may or may not be a security. If an indexed annuity is a security, it is regulated by the SEC. All indexed annuities are also subject to state insurance regulation. If an indexed annuity is not a security, it will not be regulated by the SEC, but would still be subject to state insurance laws.