Fixed vs. Variable vs. Indexed Annuities — Side-by-Side

Three Types

What are the three main types of annuities?

The three main types are fixed, variable, and fixed indexed annuities. Fixed annuities guarantee a set interest rate. Variable annuities invest in market sub-accounts with potential for higher returns but also losses. Fixed indexed annuities earn interest based on a market index but protect your principal from losses.

Each type serves a different purpose and carries a different risk profile. Understanding the distinctions helps you determine which type — if any — may be appropriate for your situation.

Comparison

How do fixed, variable, and indexed annuities differ?

The core difference is how your money grows: fixed annuities use a guaranteed rate, variable annuities use market investments, and indexed annuities use a formula linked to a market index. Risk and return potential increase from fixed to indexed to variable.

Feature	Fixed / MYGA	Fixed Indexed (FIA)	Variable
Growth method	Guaranteed rate	Index-linked formula	Market sub-accounts
Principal protection	Yes	Yes (from market loss)	No — can lose value
Upside potential	Limited to stated rate	Moderate (capped)	Unlimited
Downside risk	None (guaranteed)	May earn 0% in down years	Can lose principal
Fees	Typically none	Typically none (may have rider fees)	1.5%–3%+ annually
Complexity	Simple	Moderate	Complex
Regulation	State insurance dept.	State insurance dept.	SEC + FINRA + state
License required to sell	Insurance license	Insurance license	Insurance + securities license

This comparison is for general educational purposes only. Features vary significantly by product and carrier. Variable annuities are securities products that involve investment risk, including possible loss of principal.

Important Note

A note about variable annuities and licensing

Variable annuities are securities products that require a securities license (Series 6 or 7) to sell. As an insurance broker, Ben Volk is licensed to offer fixed annuities and fixed indexed annuities. Variable annuities are included here for educational comparison purposes only.

If you are considering a variable annuity, you would work with a registered representative at a broker-dealer. If you are interested in fixed or fixed indexed annuities, an independent insurance broker like Ben can compare options from multiple carriers.

Many retirees who prioritize principal protection and guaranteed income find that fixed annuities meet their needs without the complexity, fees, and market risk associated with variable products. However, the right choice depends entirely on your individual risk tolerance, time horizon, and financial goals.

Common questions

Can I lose money in a fixed indexed annuity?+

Your principal is protected from market losses in a fixed indexed annuity. However, in years when the linked index declines, you may earn 0% interest (but not negative). Surrender charges still apply for early withdrawals. Guarantees depend on the issuing carrier.

Why do variable annuities have higher fees?+

Variable annuities include mortality and expense charges, administrative fees, and underlying fund expenses that collectively range from 1.5% to 3%+ annually. These fees compensate for the investment management and insurance guarantees within the product.

What is a participation rate?+

In a fixed indexed annuity, the participation rate determines what percentage of the index gain is credited to your account. For example, a 60% participation rate means you receive 60% of the index's positive return, subject to any cap.

What is a cap rate?+

A cap rate is the maximum interest rate a fixed indexed annuity will credit in a given period, regardless of how much the index gains. Caps typically range from 3% to 10% depending on the product and market conditions.

Which type is best for retirement income?+

There is no universally best type. Fixed annuities offer the most predictability. Fixed indexed annuities offer some growth potential with principal protection. Variable annuities offer the highest growth potential but with market risk. The appropriate type depends on your individual situation and risk tolerance.

Do all annuity types offer lifetime income options?+

Most annuity types can be annuitized (converted to lifetime income payments). Some fixed indexed and variable annuities also offer optional lifetime income riders for an additional annual fee. Fixed annuities and MYGAs are more commonly used for accumulation rather than immediate income.

Fixed vs. variable vs. indexed: three annuity types explained.

What are the three main types of annuities?

How do fixed, variable, and indexed annuities differ?

A note about variable annuities and licensing

Common questions

Have questions about your situation?