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.
References in periodicals archive ?
The objective of purchasing an equity index annuity is to realize greater gains than those provided by CDs, money markets, or bonds, while still protecting principal.
I'll still accomplish this by showing my clients all three kinds of annuities: traditional fixed rate, variable, and the newest version of an equity index annuity called BPA.
One type of structured product, the equity index annuity, provides some insight into both the challenges and the opportunities.
Equity Index Annuity Sales Sales zoomed ahead by more than 80% in 2002, reaching nearly $12 billion, about $5.5 billion more than 2001 sales.
In response to this dilemma, the insurance industry has created the Equity Index Annuity (EIA) that allows the investor to share in market increases as the market rises, but avoids the possibility that the investor will suffer losses in a "down market" environment such as we've witnessed over the past couple of years.
Because the Equity Index Annuity is classified as a "fixed annuity," no securities license is required to make it available to your clients.
The industry has taken the initiative to rename the product as a "fixed index annuity" (FIA) in lieu of equity index annuity (EIA), its original name.
WITH EQUITY INDEX ANNUITY sales surging, products proliferating, confusion reigning and regulators lurking, this may be the time for the industry to develop a common language to talk about index interest crediting.
Example: Take an equity index annuity purchased on Jan 1, 2003.
Like their equity index annuity counterparts, EIULs have a minimum interest guarantee but also credit interest by linking gains to growth in an equity index.
Make no mistake about it, an Equity Index Annuity is a complex product in every sense of the word.