They're complex: Equity-indexed annuities are very complicated investment vehicles, and they come in a wide variety of forms. Their complexity makes them extremely difficult for investors to understand, and advertising pitches can often be deceiving.
They don't always match a indexes' full return: They also don't necessarily provide you with the entire return of the marketplace index they're tied to. Different equity-indexed annuities calculate your gains in different ways. For example, some provide you with only a portion of the index's overall return, or set an annual cap – and most exclude dividends. So when the marketplace returns are a big draw for you, make sure you know exactly what you're getting.
Fees: Then there are surrender charges. In some indexed annuities, surrender charges can run as high as 20% and last for 15 or more years. So you may not have access to all of your money without paying steep penalty charges for a long, long time.
The Financial Industry Regulatory Authority (FINRA) has issued a useful investor alert on how to size-up equity-indexed annuities.