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Comparing RILAs and VAs

Annuities have been around for hundreds of years for good reason. While much has evolved, one thing stays constant: there鈥檚 never a shortage of needs to fill. Much as they always have, clients continue to turn to annuities to help grow and protect their money. The questions to ask become: how much growth? And how much protection?

Depending on the client and the need, the answers may lead to a variable annuity (VA), a registered indexed-linked annuity (RILA) or a fixed indexed annuity (FIA).

Which to choose and when

VAs allow for direct investment in accounts similar to mutual funds. While VAs offer higher growth potential, they also have higher risk than other annuities. For that reason, most people purchase variable annuities when they have the ability (and risk tolerance) to absorb the impact of market declines.

With FIAs, earnings come from interest credits determined in part by the performance of an external market index. Fixed indexed annuities guarantee that 100 percent of principal is protected from loss due to market downturns. People generally buy FIAs when they鈥檙e willing to sacrifice some growth potential in exchange for the promise that while they may earn zero percent interest, they鈥檒l never earn less than zero.

RILAs are a newer type of annuity designed mainly for people seeking accumulation with a measure of protection from market loss. RILAs offer index-linked interest credits and include a buffer or floor that absorbs a percentage of any decline in index value.

From a risk standpoint, a RILA can be described as a cross between a FIA and a VA. A RILA may be a good match for clients who want to limit downside exposure, but are willing to accept some market risk in exchange for strong growth potential. It鈥檚 important to know your client鈥檚 annuity 鈥渃omfort zone鈥� when it comes to tolerance for risk.

A growing demand for annuities, including RILAs, speaks volumes to their importance for future financial security. Access an exclusive report from a leader in economics and retirement income planning to find out how a RILA could help build a resilient retirement for your clients.

An important caveat:

While each annuity has a purpose and matching client type, they may not be available for all financial professionals to sell. VAs and RILAs can only be marketed and sold by securities licensed financial professionals. If you鈥檙e not currently securities licensed, it may be worthwhile to weigh the options of becoming licensed. While an investment in time and effort, it may be worth it for the additional opportunities for you, your firm and your clients. Unlike history, the future can be rewritten.

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Guarantees provided by annuities are subject to the financial strength and claims paying ability of the issuing insurance company.