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The equity-indexed annuity (EIA) has been around since 1995, and in its short life has proven to be a fast-growing alternative to fixed-rate annuities and certificates of deposits.

EIAs provide a guaranteed interest rate combined with the ability to earn a percentage of certain market-driven indexes, mirroring characteristics of both fixed-rate and variable-rate annuities. The percentage of the index's gain that a customer receives varies, with some companies offering 50 percent and others offering 100 percent or more. Make sure you read the fine print.

Because every equity-indexed annuity is different, you should ask your agent or broker questions before deciding to invest:

1)What is the annuity's term?
In general, equity-indexed annuities tie up your money from a required five to ten years. Like any stock investment, the shorter the term, the greater the risk the stock market won't perform well over the holding period.

2)What do you earn when the market goes up?
Equity-indexed annuities credit you anywhere from 50 to 100 percent of the price gain of the market, excluding dividends. Because you're not earning dividends, you won't earn as much as you might by investing directly in the market. The percentage rate you earn can change from year to year, so make sure you check with your agent.

3)How does the company calculate your gain at the end of the term?
Some equity-indexed annuities use the market price on the day your annuity matures. Others look at the market price on each anniversary and pick the highest one. Some policies credit you with a portion of each year's market gains, while others average the gains. Make sure you understand which method the policy you're considering uses.

4)Are there limits to your earnings?
Often equity-indexed annuities put a cap on yearly earnings, and some policies allow the insurer to change the cap annually. Ask your agent about this.

5)What happens if stock prices decline?
If the market drops one year, you will be credited with no gain that year. The crediting method the company uses will determine what happens in subsequent years, especially if the market doesn't return to previous levels.

6)What happens if you want to quit the annuity early?
Some policies will give you the guaranteed minimum return, while others will credit you with all or part of your earnings, minus the surrender fee.

7)What if everything crashes?
Equity-indexed annuities carry a minimum return, but only if you keep the policy until its maturity date. The guaranteed return is usually 3 percent, but may not be 3 percent of what you paid into the policy in the first place. Some companies guarantee you will get at least 3 percent of 90 percent of what you spent. Also, make sure you understand how that minimum return is computed.

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