Equity Index Annuity Floor

Floor on equity index linked interest the floor is the minimum index linked interest rate you will earn.

Equity index annuity floor.

Fixed indexed annuities credit interest in part based on changes to a market index such as the standard poor s 500. Equity indexed annuities may appeal to moderately. A buffer and a floor are two options that limit exposure to market loss. 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. 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. 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. 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. The indexed annuity annual crediting rate is based on the sum of the monthly changes in the s p 500 index. This cross between an indexed annuity and a variable annuity has gained attention in the investment worldand not all of it positive. 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.

Floor on equity index linked interest the floor is the minimum index linked interest rate you will earn. In most fixed indexed annuity contracts the floor is 0. An equity index annuity is a contract with an insurance or annuity company. Indexed annuities are sometimes referred to as equity indexed or fixed indexed annuities.

For example if an index declines 15 percent and you choose a 10 percent buffer you would incur a loss of 5 percent. A floor of 0 is applied to the annual total. Wish to participate in the equity markets. 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.

The most common floor is 0. Key takeaways an indexed annuity pays a rate of interest based on a particular market index such as the s. 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. Opposite of the buffer option.

Each month s return is capped at 1 5. It guarantees a minimum interest rate if held to the end of the surrender term and protects against a loss of principal.