American Equity Annuities: Understanding Benefits and Drawbacks

David Noble founded American Equity as a private company in 1995 to sell life insurance and annuities to customers in Iowa. In 2003, he took the company public and issued an initial public offering through the New York Stock Exchange. American Equity expanded over the next two decades and now serves clients in 50 states and in Washington, D.C.

As of 2023, American Equity operated through a group of three member companies. The original company is headquartered in the Midwest, and the second is in New York. Both are registered under the name American Equity Investment Life Insurance Company.

A third company is Eagle Life Insurance Company. All three companies specialize in retirement annuities.

The three firms have more than 800 employees, more than 20,000 affiliated agents and more than 600,000 contract owners nationwide. They reported retained earnings of $349.7 million for the second quarter of 2022.

The reputation of a company is best explained by third-party raters. AM Best’s rating for American Equity Investment Life Insurance Company is A- (Excellent), the fourth-highest rating of 11 ratings ranging from A++ (superior) to D (poor). This shows that the company has a strong financial position and can meet its obligations to policyholders. Additionally, AM Best gives American Equity a credit rating of A- (excellent), meaning the company has enough reserves and creditworthiness to meet its financial obligations.

Fitch Ratings gave American Equity a rating of A- (outlook stable) for financial strength, the seventh highest out of 19 ratings. It also gave a credit rating of BBB. And S&P Global Ratings gave the company an A- for financial strength and BBB- for a credit rating. All these ratings indicate that the company can meet its financial obligations. However, the ratings also indicate that in case of adverse economic conditions, the company may be affected more than higher-rated companies.

American Equity offers three types of annuities. The three are fixed index annuities, fixed annuities and immediate annuities. An annuity is a contract with an insurance company that pays a stream of income, usually during your retirement, in exchange for a lump-sum payment or annual premiums paid to the company.

Fixed annuities are those that have a fixed rate of growth. A pre-negotiated contract spells out the annuity rate of return, which locks in for a specific number of years. During that period, your investment will accumulate interest based on that guaranteed rate.

At the end of the annuity term, you can receive your income as a lump-sum payment or as monthly, quarterly or annual payments. You can also choose to convert it into a lifetime income stream. Fixed annuities protect you from a possible fall in interest rates. But they can limit your income if interest rates rise or if the stock market enjoys a healthy run while your money is tied up.

Fixed index annuities combine the features of fixed and variable annuities. That means there’s a minimum interest rate below which the annuity can’t fall, regardless of market changes. However, the rate can increase if a defined stock market index, such as the S&P 500, rises. That provides the same protection as a fixed annuity but with an opportunity to generate more money if interest rates rise.

Immediate annuities are ones that pay off more quickly. You must make a lump-sum payment to the insurance company. Then, after 12 months, the company can pay you the agreed-upon amount over the agreed-upon period. Unlike fixed annuities, you don’t have to accumulate savings.

This option may be ideal for retirees who receive lump-sum payments and want a continuous income stream. You can get the income for life or a set number of years, depending on your age and the lump sum that created the annuity.

American Equity doesn’t charge an annual fee for contracts with a fixed maturity. But it does charge a small percentage fee for lifetime income benefit contracts. It also offers a variety of specialty annuity products — AssetShield and IncomeShield — that have fee regulations on withdrawals. Fees depend on the number of years until maturity.

The company allows annuitants to withdraw interest credited to their accounts for the current contract year. Any withdrawal beyond this amount gets charged a penalty that starts at 9% in the first year. Any future charges get reduced by 1% each subsequent year, except for the maturity year.

For instance, AssetShield 10 is one of American Equity’s popular fixed index annuities. It has a 10-year maturity period and requires a minimum investment of $5,000. Annual withdrawals of up to 10% of the contract’s value are free. If you end the contract before maturity, the surrender value won’t be less than 87.5%.

The specific charges you pay depend on the product you buy. American Equity is open about those charges and lists them in the annuity contract. You can use the company’s online calculator to determine how much you can expect to make in your investment.

The American Equity customer service page provides various methods for contacting the company. You can reach out via email, a toll-free number and a physical mail address. There’s also an option for clients to create online accounts to gain instant access to their information.

American Equity was also ranked as the highest annuity provider for Customer Satisfaction in the J.D. Power and Associates 2022 U.S. Individual Annuity Study.