Indexed Annuities

Last updated: November 23, 2015

A Special Type of Fixed Annuity

An indexed annuity earns interest or provides benefits that are linked to an external equity reference: such as a stock index.

  • One commonly used index is Standard & Poor’s 500 Composite Stock Price Index.

The value of any index varies from day-to-day. It is not predictable.

  • When you buy an indexed annuity you own an annuity contract, not shares of any stock or index.

An indexed annuity differs from other fixed annuities because of the way it credits interest to your annuity’s value. Some fixed annuities only credit interest calculated at a rate set in the contract.

  • Indexed annuities credit interest using a formula based on changes in the index to which the annuity is linked.

    • The formula decides how the additional interest, if any, is calculated and credited.

      • How much additional interest you get and when you get it depends on the features of your particular annuity.

Like other fixed annuities, your indexed annuity also promises to pay a minimum interest rate.

  • The rate that will be applied will not be less than this minimum guaranteed rate even if the index-linked interest rate is lower.

  • The value of your annuity also will not drop below a guaranteed minimum.

Indexed annuities provide a potentially greater return than traditional fixed annuities. They have less growth potential than variable annuities, but also with less downside risk.

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