Equity Index Annuity Floor

Indexed annuities are sometimes referred to as equity indexed or fixed indexed annuities.

Equity index annuity floor.

A floor of 0 is applied to the annual total. This cross between an indexed annuity and a variable annuity has gained attention in the investment worldand not all of it positive. A 0 floor assures that even if the index decreases in value the index linked interest that you earn will be zero and not negative. In this case you would be exposed to the percentage loss up to the floor amount but you are protected against any loss after this percentage.

The indexed annuity annual crediting rate is based on the sum of the monthly changes in the s p 500 index. Fixed indexed annuities credit interest in part based on changes to a market index such as the standard poor s 500. In most fixed indexed annuity contracts the floor is 0. Floor on equity index linked interest the floor is the minimum index linked interest rate you will earn.

Percentage of downside protection typically 10 20 or 30 percent. To recap the floor is the minimum index linked interest rate you would earn. A 0 floor assures that even if the index decreases in value the index linked interest that you earn will be zero and not negative. Floor on equity index linked interest the floor is the minimum index linked interest rate you will earn.

The returns may be higher than fixed instruments such as certificates of deposit money market accounts and bonds but not. Key takeaways an indexed annuity pays a rate of interest based on a particular market index such as the s. Each month s return is capped at 1 5. Wish to participate in the equity markets.

An equity index annuity is a contract with an insurance or annuity company. For the 1 year illustration chart the s p 500 index returned 4 38 including dividends while the annuity s credited rate is calculated to be 0. The most common floor is 0. An indexed annuity in the united states is a type of tax deferred annuity whose credited interest is linked to an equity index typically the s p 500 or international index.

For example if an index declines 15 percent and you choose a 10 percent buffer you would incur a loss of 5 percent. A fixed indexed annuity is not a registered security or stock market investment and does not directly participate in any stock or equity investments or index. Equity indexed annuities may appeal to moderately. An equity indexed annuity is a fixed annuity where the rate of interest is linked to the returns of a stock index such as the s p 500.

The most common floor is 0. According to finra state insurance laws also require fixed index annuities to pay a guaranteed minimum rate of 1 3 on 87 5 of the paid premium dollars.