It was presented to me as a way to get the same return as the stock market with a 3 percent guarantee. However, after doing some research, I've learned of several major shortcomings of the investment. Unfortunately, there is little you can do to avoid paying the surrender charge if you cash out your annuity contract. You were given a 10-day free look when you first purchased the annuity contract and if you didn't cancel your investment during that time frame, there is little recourse.
Insurance companies are masters at imposing early surrender fees.
On major problem with these investments is how they are regulated. Index annuities are technically fixed annuities and therefore are not regulated by the Securities and Exchange Commission but by the Department of Insurance. Because of this, insurance agents who are not licensed to sell securities can recommend these products to their clients, even though they may have no training or regulation in the securities markets. This alone causes me great concern. While index annuities may guarantee a return of principal with a small rate of return, you are typically required to hold the investment for seven or more years.