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.
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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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
For example, the buyer of an equity indexed annuity does not have a separate account that fluctuates based on the securities market's movement--up and down; instead, all credited interest gains are guaranteed and locked-in, protecting the principal.
Allianz Life Insurance Company of North America, Minneapolis, has added an equity indexed annuity to its line of top-selling EIAs.
Officials at the National Association of Securities Dealers, Washington, have made a point in recent months of complaining about what they say are complicated equity indexed annuity contracts and a fragmented system for regulating annuities.
Poolman says a joint session of the "A" committee and the Market Regulation and Consumer Affairs "D" Committee to examine equity indexed annuity products will help determine whether "there are any potential holes that need to be filled" with additional regulation.
REFLECTING THE IMPACT OF strong equity indexed annuity sales, fixed annuity sales for the first half of 2005 totaled $41.7 billion.
While traditional book value deferred annuities and standalone market value adjusted (MVA) annuities year-to-date sales remain in double-digit decline when compared to 2003, equity indexed annuity sales are up 63% (Figure 2).