Institutional Market Linked Accounts (MLA) are Available as:
Tax Deferred Annuities
Indexed Life Insurance
Each MLA type has it own set of unique characteristics, but all are linked to either a financial index. Every MLA in the above categories is guaranteed against all market losses by the issuing financial institution. We categorize both market linked bank CDs and indexed insurance products as institutional market linked accounts, because the principal is guaranteed by a major financial institution.
Below find a brief description of each type. Our hope is that this information will guide you to the most appropriate choice for your situation. A side-by-side comparison of features is also provided, click here for ????link??.
Market Linked CDs (MLCDs)
MLCDs were created to outperform traditional CDs. For many years they have been the the exclusively purview of the bank’s wealthiest clients and have only recently become available to the general public.
Basically an MLCD is a bank deposit that credits interest based on the performance of a specified equity or other financial index. Their y typical duration is four to ten years and all specifications are set at the date of issue and cannot be changed. Once issued the performance of the MLCD is entirely dependent on market conditions. But the principal is guaranteed by the bank and insured by the FDIC.
An MLCD is has only partial liquidity prior to the maturity date and the taxes are levied as if it was a traditional CD. These instruments can be very complex. Typically new issues are announced monthly. We review hundreds of MLCDs every month, but only recommend a select few to our readers.
Market Linked (Indexed) Annuities
This type of annuity is marketed as ‘tax deferred equity indexed annuities’. They are long term savings accounts and compound earnings tax free until withdrawn. Hence the name, ‘tax deferred annuity’. They are perfect for retirement savings, since they both accumulate tax free and have tax advantaged payout options. Equity indexed annuities normally offer a number of crediting formulas and often have more than one index available.
Because of their long-term nature, equity indexed annuities are even more complex than market linked CDs. A special sub-category, of indexed annuities, termed ‘hybrid-annuities’, guarantees both accumulation rates and retirement income levels. However, there is generally a surcharge for the retirement income guarantee. Seek expert guidance when comparing these types of annuities, as they are extremely complex financial tools.
Market Linked (Indexed) Life Insurance
Also called ‘indexed universal life’, these products have cash values that are generated by a choice of market linked accounts. At death the cash value is optionally added to the death benefit. Like an indexed annuity, an indexed life policy accumulates earnings tax free and incurs no income tax liability until more funds are withdrawn than were contributed. However, most policies allow an unlimited amount of tax free loans. This provision, combined with a nominal loan rate, essentially allows lifetime tax free retirement income.
The death benefits of a life insurance policy are distributed tax free, so any built-up tax liability disappears at death. Indexed universal life policies are perfect for funding certain types of retirement needs, maximizing the transfer of family wealth and protecting business ownership through buy-sell agreements and business succession plans.
Are market linked accounts issued by a non-institutional entity. This might be a brokerage house, or an asset management company or a private individual. Structured notes can have a wide variety of forms. These types of structured notes do not come with an institutional guarantee of the principal an are therefore not covered on this site. Our only guidance on structured notes is to be careful and make sure you understand exactly what you are buying.