Participation rate

The portion of an index’s movement that a fixed indexed annuity credits for a crediting period, under the contract’s crediting method.

A fixed indexed annuity does not credit the full movement of an index. The participation rate states what portion of the index movement is used — for example, 70% of a 10% index movement, before any cap or spread is applied. Crediting methods vary: annual point-to-point, monthly averaging, and other methods can produce different results from the same index path, and index dividends are generally excluded from the calculation. Caps and spreads limit interest further, and the contract may allow these terms to change over time. A negative index result generally produces no index-linked interest for that crediting period. That does not mean contract value cannot decrease for other reasons: rider charges, policy or contract fees, withdrawals, surrender charges, and market value adjustments can all reduce value. Guarantees depend on the issuing insurer’s claims-paying ability.

Sources

• SEC Investor Bulletin — Indexed Annuities
• FINRA — Understanding Annuities

Educational information only. This page is not individualized insurance, investment, tax, legal, or accounting advice, and it is not a recommendation to buy or replace any product.

Keep reading

• Fixed indexed annuities
• Surrender period