We mentioned the "free lunch" seminars last week.   Often these luncheons are hosted by insurance companies that are promoting index annuities.   This type of annuity has come under a lot of scrutiny by securities regulators.

BusinessWeek provides some basics on these annuities.  Retirement Made Complicated- Index Annuites.

Here's how the indexed annuity works. An investor buys a policy with a one-time purchase—typically a minimum of $5,000 or $10,000. The term may run from 4 to 12 years, and the payoff is linked to the stock market. The big selling point—one that gives it a lot of appeal to risk-averse sorts—is that the annuity's value doesn't decline if the market does. In fact, the annuity builds in a guaranteed minimum return, usually between 1% and 3%.

If this no-loss policy sounds too good to be true, it is. The annuity owner doesn't get all of the stock market's gains, and forget about the dividends. That's the giveback—in effect the insurance premium—that pays for the downside protection and the minimum guarantee.

RetirementThink resource for income annuity and variable annuity basics.