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Equity-Indexed Annuity

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Equity-Indexed Annuity
An annuity with an interest rate linked to the performance of an equity index. Most annuities pay the interest rate stated in the contract, but an equity-indexed annuity pays a minimum interest rate, with the possibility of a higher rate depending on the performance of the relevant stock or equity index. Each plan uses a different methodology in determining how the higher interest rate is calculated. Common features in its calculation include a participation rate, which determines how much of the annuity is linked to the index, and the rate cap, which sets a maximum interest rate on some plans. Many equity-index annuities use the Standard & Poor's 500 Composite Stock Price Index (S&P 500) as their benchmark.

equity-indexed annuity
A contract with an insurance company that promises periodic payments keyed in a specified manner to a stock market index. Unlike variable annuities, equity-indexed annuities specify a guaranteed minimum return that is typically 3%. These contracts may also specify an upper limit (cap) on the return that is paid. Indexing methods vary, and surrender charges often apply to early withdrawals.


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If you feel the need to have an equity-indexed annuity type of investment in your portfolio, chances are you would be interested in a little known investment called an equity-linked certificate of deposit.
An equity-indexed annuity is a type of variable annuity whose return is based on the performance of a specified equity index, such as the S&P 500 Composite Stock Price Index.
An equity-indexed annuity is a special type of annuity tied to a specific stock index.
 
 
 
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