Annuities
Fixed indexed annuities
Growth linked to a market index, with a floor at zero. The trade is simple: you give up some upside in exchange for not participating in losses.
How the crediting actually works
Your money doesn’t go into the market. The insurer credits interest based on how an index performed over a set period, subject to three dials that determine your real return:
Cap
The most interest you can be credited in a period, even if the index did far better. A 9% cap on a 25% index year means you get 9%.
Participation rate
The percentage of index movement you receive. An 80% rate on a 10% index gain credits 8%.
Spread
An amount subtracted from the index gain before crediting. A 3% spread on a 10% gain credits 7%.
There’s also the crediting method — annual point-to-point, monthly sum, monthly average — which can produce very different results from the same index over the same period. Any illustration you see depends heavily on these choices. Ask to see more than one.
What you get and what you give up
You get
- A floor of zero — no market losses credited
- Tax-deferred growth
- Optional lifetime income riders
You give up
- Uncapped upside — caps and rates limit gains
- Liquidity — surrender charges in early years
- Simplicity — these contracts are genuinely complex
A common misunderstanding: the floor protects the contract value from being reduced by index losses. It does not mean the contract value can never decline — withdrawals and rider charges can still reduce it. We’ll walk through the actual contract language together.
See an illustration with real numbers
We’ll look at caps, rates, and riders side by side.